Bitcoin in limbo ahead of Last FED meeting before US elections
I’ve launched a telegram channel where I’ll post updates, articles, news, deals, possible short-term analysis and general data points of interest as things develop.
Please note that this is not a “call” channel and I will avoid giving trade signals. In fact, I’d urge you to DYOR (do your own research) before doing anything in this crazy market.
In today’s edition, we’ll cover central bank movements more closely given their bearing and relevance on most markets on a macro perspective. Additionally, we’ll delve into the bitcoin technicals which are beginning to paint a mixed picture, particularly on lower time-frames.
Let’s dig in.
Stocks edge higher ahead of FOMC meeting
The Federal Open Market Committee (FOMC) convenes on the 15th and 16th of September for the first time since bitcoin’s chief marketing officer, Jerome Powell announced a zero tolerance policy for deflation.
As US elections draw closer, investor focus is set to shift towards the economic recovery and the US presidential race. However, before that, the next two days might provide further clarity on how the Fed plans to use its forward guidance after the declaration to target an average 2% inflation rate.
At the time of writing, markets seem to be modestly optimistic, with the S&P edging a few basis points (0.84%) higher perhaps in anticipation of tomorrow’s meeting. But according to several analysts and strategists, tomorrow’s meetings are unlikely to be of much consequence.
Quincy Krosby, chief investment strategist at Prudential Financial, said the stock market could easily be disappointed because the Fed is unlikely to offer more clarity on monetary policy, such as plans for bond buying.
“The market is concerned the Fed is not going to give us explicit readings on their plans for monetary policy,″ she said. As you’re well aware, the Fed’s extraordinary policies policies of infinite money have been the driving factor behind the stock market’s 50% surge from the March 23 low, and is also seen as a major factor limiting the depth of the market’s sell-off.
Peter Boockvar, chief investment officer at Bleakley Advisory Group, said the Fed is not likely to tweak much as it maintains its $80 billion a month in Treasury-buying program. “I don’t think they’ll do anything to the markets either way,” he said.
Stocks were quite volatile during the past week, dropping nearly 8% from peak to through since the top as inflationary and deflationary arguments butt heads.
Krosby pointed out this current market dichotomy, lending credence to the idea that markets might not see any major moves to either side in by the end of Q3.
“There is a tug of war between those who say buy chips now because inflation is moving higher, versus those why are saying deflationary forces are still weaving their way into the economy”.
Of course, the only thing one can be reasonably certain of is some superficial discussion about inflation and the potential to overshoot the historical 2% target. Since this is the last Fed meeting before the election, it’s likely for Jerome Powell to take a reassuring stance towards supporting the economy. Ultimately though, this could be interpreted as neither here nor there for the time being.
Provided the S&P doesn’t make any dramatic moves, then the potential for major downside risk in bitcoin is much lower.
LEAKED: EU to be the first jurisdiction to regulate crypto
According to news site Euroactive, a leaked report shows that the EU will setup a college of supervisors including national European authorities to oversee “significant” digital currencies including Facebook’s Libra. This would make the European Union the first major bloc to regulate cyrpto at this level.
Briefly, the leaked report suggests that the EU will be the first major jurisdictional bloc to regulate crypto at this major level, most notably in an attempt to quell rumblings of private currencies such as Facebook’s Libra, and publicly-backed money like bitcoin.
The EU probably sees Libra as the greater threat due to its potential to reach 2.7 billion users, and in doing so possible destabilizing the Eurozone. In fact, French finance minister Bruno Le Maire told Euroactiv in July last year that: “ We will not accept that Libra is transformed into a sovereign currency that can endanger financial stability. “
Clearly, the EU hasn’t changed its tune and is likely to respond aggressively to any existential threats that can be targeted, such as the Libra project.
The document did not cover Central Bank Digital Currencies (CBDC), which is the next logical step in a process that would invariably cut out the middle-man (private banks) while opening up unilateral access to a new financial ecosystem.
Notably, this document would probably accelerate exit-scams in crypto as the regulatory hammer comes down. All in all though, it’s unlikely to affect bitcoin to any significant affect given that the number one crypto is well regulated and with the longest-standing track record of all digital currencies and assets.
Hold the line: BTC (HTF) refusing to drop below $10,000?
Bitcoin has stubbornly refused to spend too much time under $10,000, as buyers retain a ‘buy the dip’ mentality just around this round psychological level.
At the time of writing, bitcoin is trading just below $10,400 after having been harshly rejected from the $10,500 pivotal level. In last Monday’s newsletter, we spoke about the possibility of bitcoin forming a trading range above the CME gap, which has since been front-run by investors who did not allow bitcoin to dip below $9,800.
As such, while the $10,500 level remains relevant, it would be prudent to start considering other possibilities — however risky they may be.
Technically, while bitcoin has closed the week below the $10,500 level, the coin has demonstrated a clear reluctance to break down into 4-digit territory as indecision grips the market. The weekly ‘doji’ candle close is a testament to this indecision.
As I write this, daily volume on BitMEX and other exchanges continues to decline, suggesting that another big move will take place sometime this week, possibly in line with stock-market volatility following the FOMC meeting tomorrow and on Wednesday.
Meanwhile, the daily MACD (moving average convergence divergence) is inching closer to a bullish cross, which could spur on a reversal or a more significant relief rally to the $11,000 level. The MACD is a momentum indicator which is particularly useful for higher-time frames and bigger swing-trades.
Any sustained move to the downside to “fill the CME Gap” will probably overshoot to lower levels given that everyone and their mum is talking about it and expecting it to get filled perfectly. While you run the risk of playing mind games on yourself in a recursive loop when applying this thought process, it just seems to perfect for bitcoin to play ball and let everyone win. As such, it’s reasonable to expect a wick to the .382 fib level at $9150 should bitcoin move lower (fib measured from March low to August high).
4-hour (LTF) technicals lean bearish
To estimate the probability of bitcoin retracing back to $11,000, we’ll take a look at lower time-frames.
On the 4-hour chart, the bullish picture doesn’t look convincing as bitcoin meanders under key levels, which if conquered, would inform expectations on higher time-frames. Currently, bitcoin is under three major indicators that tend to dictate bullish/bearish price-action.
Typically, when price is below the super-trend (red line) in a bear-trending market, one can expect this level to act as a resistance point, which appears to be the case here. Additionally, price has also bounced off the VWAP, which is calculated independent of time-frames. Briefly, the VWAP identifies the true average price of an asset by factoring the volume of transactions at a specific price point and not based on the closing price.
Finally, bitcoin is also trading just below the .382 fib (measured from the dump), which is typically the minimum expected retracement level within a trending market. Bears will be looking to break below $9,800 on volume; and should that fail for the 6th time then a possible ‘double bottom’ structure could be in the making.
On the flipside, the bitmex funding rate has turned negative, which is perhaps the silver lining for bulls, in addition to the hash-ribbons which still haven’t flipped bearish on any meaningful timeframe. Considering that bitcoin’s hashrate has hit all time highs again, this signal makes perfect sense.
All in all, the setup here is quite clear: buyers will probably enter more aggressively as price nears $10,000 while sellers will continue to push lower provided the $10,500-$10,600 level isn’t conquered. In this case, it would be reasonable to expect momentum to take bitcoin back to retest $11,000.
As much as it pains me to say it, until price closes a few 4-hour candles above $10,500-$10,600, then one can expect this market to trend towards re-testing $10,000 until proven otherwise.
In the event of a CME-gap-fill correction, this does not mean bitcoin will go to zero — far from it. If history is a guide, then a 30% pull back is completely normal in a bitcoin bull-market and such a scenario merely provides another opportunity (and perhaps the last one) to buy bitcoin at 4-digits.
In addition, a lot can happen in two-weeks so I wouldn’t put it beyond bitcoin to flash crash to $9,150 and then reverse to $10,000 within the same day. At this stage, fundamentals are leapfrogging bitcoin and it’s already impressive how well it held $10,000 in light of the fact that it has spent the vast majority of its lifetime below this price.
Lastly, when everyone is capitulating, that’s often a signal to start thinking about getting in. It’s hard to say whether we’ve seen enough blood in the streets yet, and given how dependent bitcoin is on external factors like gold, the SPX and the USD DXY index then paying attention to central bank actions for a better macro-understanding makes sense. Of course, these are mostly irrelevant on smaller time-frames — until they aren’t.
In this macro bull market, the question on everyone’s mind is where to ‘buy in’. For the most part, this is a pointless endeavour and averaging in as price bleeds is most likely the best way to ensure returns in the coming months.
May your gains be high and your losses low.
Catch you next time.
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