Long Liquidations Spike Bitcoin Suffers “Sell the Fact” Reaction to Dovish Fed, But BTC Dip-Buyers Will Probably Pounce
Despite the fact that the majority of market participants believed the most recent Fed policy announcement to be more dovish than anticipated, which caused the US dollar and US yields to decline, Bitcoin markets experienced a “sell the fact” reaction, with the BTC price falling sharply and long liquidations rising.
BTC/USD was last trading in the mid-$27,000 range, having briefly fallen as low as the $26,600 range, according to CoinGecko, and was down about 2.2% over the previous 24 hours.
The first two hours following the Fed’s announcement of its policy saw the liquidation of about $60.2 million in long Bitcoin futures positions, according to the cryptocurrency derivatives analytics website coinglass.com.
Fed Presses Ahead With Rate Hike, But Comes Across as Dovish
The Fed increased its target interest rate range by 25 basis points to 4.75–5.0%, as anticipated, but changed its tone regarding the potential of additional increases after noting that recent American bank woes increased the negative risk to the economy’s outlook.
The statement that “some” additional policy firming “may be needed” has replaced the earlier statement that “ongoing increases” “will” be appropriate.
This appeared to be sufficient to trigger a dovish response in the currency and bond markets, along with the Fed’s change in tone. The US 2-year yield dropped 23 basis points down under 4.0%, while the US Dollar Index (DXY) was last down about 0.6% near 102.50.
In their estimation of where US interest rates are expected to go this year, US money markets experienced a dovish move.
According to the CME’s FedWatch Tool, the probability that the Fed will have initiated rate rises of between 50 and 75 basis points by the end of 2023 is currently valued at about 65% as opposed to about 50% the day before.
Bitcoin Bulls Likely to Buy the Dip, $30,000 in Sight?
The Bitcoin price had been rising earlier in the day, reaching new nine-month highs in the $28,900 range, prior to the Fed meeting.
After the Fed meeting was over, many traders were eager to cash in, which resulted in what some have dubbed a “sell the fact” reaction to the dovish meeting.
Of course, despite the fact that the correlation between the two asset classes has recently deteriorated significantly, the decline in US equities markets on Wednesday may possibly have had an impact on cryptocurrencies.
Following Janet Yellen’s announcement that the government is not considering expanding deposit protection beyond the present $250,000 per account to cover all depositors, the decline in stocks was driven mostly by declines in bank names.
This remark might cause some bank clients to worry that their savings (above $250,000) aren’t secure, increasing the possibility of a bank run, which might explain why bank stocks are down.
But, purchasers of Bitcoin dips are likely to be drawn in by Wednesday’s return of concerns over US bank soundness.
Nevertheless, since the failure of three US banks earlier this month, Bitcoin has served as a shelter from the volatility of the conventional banking industry.
If US bank stock names continue to decline, it might not be long until Bitcoin (BTC) reaches $30,000 or even the next significant resistance level around $32,500–$33,000.
Since the US dollar and US rates traditionally have a negative association with Bitcoin, a decline in either of these traditional assets also promotes the possibility of a rise in the price of Bitcoin to new multi-month highs.
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