Bitcoin (BTC) retreated and reversed its intraday gains after the Federal Reserve announced its third consecutive 75 basis point (bp) interest rate hike on September 21st.
Traders sold the news
The price of BTC fell about 6.5% from its intraday high of $19,950, hitting $18,660 minutes after the Federal Open Market Committee’s statement. The decline reflected a similar sudden correction in the US stock market, with the benchmark S&P 500 index falling 0.5% minutes after the Fed’s update.
On the other hand, the yield on 10-year US Treasury bonds jumped to 3.6% after the Fed’s announcement against 3.56% five minutes earlier. Likewise, the yield on the 2-year Treasury bond fell from 3.98% to 4% over the same period.
The US dollar index (DXY), which measures the strength of the greenback against a basket of major foreign currencies, jumped to 111.57 for the first time in 20 years.
The Fed also released an updated dot plot, showing its officials’ individual projections for interest rates through the end of 2025. These forecasts indicate further rate increases in the future, the target being 4.4% in 2022 and 4.6% in 2023.
Central bank officials also estimated that the policy rate would peak at 4.6% in 2023. It is expected to decrease to 3.9% in 2024 and then to 2.9% in 2025.
All Metrics Point To Bitcoin Suffering More
The dollar’s rise and bitcoin’s decline after the Fed update reflected investors’ growing appetite for cash and cash-based instruments over riskier assets. Meanwhile, the central bank’s dot chart indicated that investor sentiment would remain unchanged through the end of 2023.
ALSO READ: As Fed rate hike looms, dollar index hits 20-year high
The price of Bitcoin may continue to suffer due to the Fed’s hawkish stance and efforts to bring down inflation from its current level of 8.3%. After the update of the central bank, there are many analysts Note that BTC price could break below its current technical support range of $18,000-20,000, given that the Fed could raise rates another 75 basis points before the end of the year.
— CRG (@MacroCRG) September 20, 2022
I don’t know how long this BTC support will last pic.twitter.com/YAdkkB9Zww. — CRG (@MacroCRG) September 20, 2022
The technical outlook for bitcoin looks similarly bearish. In particular, the cryptocurrency has formed a bearish reversal pattern known as “head-shoulder” with a profit target around $14,000 as shown below.
Conversely, bitcoin may reach an interim upside target above $22,500 as a result of a retracement from the $18,800 head and shoulders support level.
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