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Analysts' Insights

Analysts' Insights

Buy or Sell Bitcoin? Will the FOMC Meeting Spark Crypto Chaos?

1) The 30-day realised volatility averages at 42% for Bitcoin in 2023. Back in December 2022, we suggested a weekly straddle strategy, involving selling both puts and calls, as our top strategy for 2023. This strategy takes advantage of Bitcoin’s relatively narrow price fluctuations.

2) This strategy continues to perform well. Bitcoin’s +60% YtD returns can be attributed to just three weeks, one in January, one in March, and one in June. Even during significant events, Bitcoin has not exhibited the usual volatility that market participants are used to.

3) As a result, both realised and implied volatility have declined to just 35%. The Federal Open Market Committee (FOMC) is meeting over the next two days, during which Chair Powell’s team will determine whether to raise US interest rates or maintain the current stance.

4) Based on Bitcoin options market pricing, traders expect that BTC will only move by 2.8% this Friday, a sign that nobody expects any market-moving comments from Chairman Powell. In 2023, Bitcoin has only seen a +1% rally shortly after the FOMC meetings, and a +3% increase one week later.

5) While Bitcoin prices seem inclined to move higher, Powell’s comments could unsettle the market, especially given last week’s higher than expected CPI data, along with oil prices, bond yields, and the strength of the dollar. Nevertheless, we still believe that inflation will continue to trend lower, and remain bullish on the market outlook.

6) News that Citibank is about to debut its token service, which turns customer deposits into digital tokens and focuses on trade finance and cash management, is another sign that the big financial institutions continue to embrace blockchain technology. Undoubtedly, blockchain is seen as a technological improvement to the current financial systems, and that’s why the probability of another bull market occurring is almost certain.

7) Tactically, our Bitcoin MP Greed & Fear index has reached its lowest point, leading us to adopt a more optimistic stance with expectations of higher prices. In addition, Bitcoin (BTC) is approaching the 50-day moving average at $27,285, which serves as a medium-term bullish signal.

8) From a technical perspective, a drop below $25,000 could potentially lead to a decline to $20,000, emphasising the importance of prudent risk management to safeguard capital. Fortunately, this risk was averted as another timely Bitcoin ETF news release at $25,100 shifted the market back into upward momentum.

9) It’s worth noting that the market became aware of Blackrock’s Bitcoin ETF filing in June, also at the $25,100 level. Is it a coincidence, or is someone defending the $25,000? This is a critical technical level, as we highlighted over the past few months.

10) Over the past month, Bitcoin has traded at around $26,000 and is building a base. First, a failed bullish attempt and then another failed bearish attempt. The odds of breaking the range to the upside are higher (Citibank news, Bitcoin ETF news, Greed & Fear, 50d MA), and our trading signals indicate that historically, Bitcoin could rally by +9% once it breaks above $27,000.

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