The Fed meeting is tomorrow. Why it is important for the crypto market

 

Experts spoke about the possible development of events after the decision of the US regulator at the July meeting

On July 26 and 27, the next meeting of the US Federal Reserve Service is taking place, at which a decision may be made to raise the rate by 75 basis points (bp) Also in the market there are expectations that due to data on a new inflation high in the US for June (9.1% with a target level of 2%), the Fed will raise the rate immediately by 100 bps, which would be the largest increase since the early 1990s.

According to experts, during 2022, the US authorities will repeatedly increase the interest rate on federal funds (federal funds rate). For example, JPMorgan experts suggested that in 2022 the Fed will raise interest rates nine times. According to the results of the meetings of the commission over the past six months, the indicator has already been raised three times.

In March 2022, for the first time since 2018, the Fed raised the rate by 25 bps. to 0.25-0.5% per annum. Then, on May 4, the rate was raised immediately by 50 (bp). And in mid-June, the indicator was raised by 75 basis points for the first time since 1994: at the last meeting, the Fed increased the interest rate to 1.5-1.75% per annum, which was the most significant increase in the last 28 years.

The rates of digital assets, like the stock market, are sensitive to such decisions of regulators. On July 26, bitcoin is trading at $21,000 and its capitalization is $403 billion with a daily trading volume of $48 billion, according to CoinGecko.

Experts explained to RBC-Crypto how a possible increase in interest rates at the current meeting of the Fed can affect the prices of cryptocurrencies.

"The laws of macroeconomics do not work now"

Tomorrow's decision of the Fed on the key rate and its increase is likely to cause a further increase in the value of digital currencies, said Artem Deev, head of the analytical department of AMarkets. He added that at the same time, usually a change in the Fed's key rate correlates with the cost of digital currencies in the opposite direction.

According to Deev, this time an unprecedented situation has developed in the world: there is an understanding that most of the laws of macroeconomics do not work at the moment. Many people are just trying to survive, others want to save capital, the analyst says.

"The value of digital currencies in this historical moment is very high. Even such significant events as the growth of the key rate of the US Federal Reserve cannot negatively affect the cost of bitcoin and other cryptocurrencies, "Deev is sure.

"There will be no collapse"

Currently, the US futures market is laying a rate increase of 75 b.p., which has already been taken into account by cryptocurrency market participants in the prices of digital assets, said Viktor Pershikov, a leading analyst at 8848 Invest. According to him, such an increase is unlikely to cause a strong decline in prices, but at the time of publication of data and comments of the Federal Open Market Committee of the US Federal Reserve (FOMC), the volatility of bitcoin and other cryptocurrencies may increase.

The expert noted that a rate increase of 100 b.p. is also possible, although market participants, in general, do not expect such a high increase. If the Monetary Policy is aggressively tightened by raising the rate by 1%, this will cause a fall in stock markets and digital assets, Pershikov believes.

He warned that against this background, BTC could reach the level of $ 19 thousand, and ETH $ 1.15 thousand According to the expert, from the point of view of the three-month yield curve with a target of 2.5% inflation, an increase of 1% will not be unexpected. But in the moment, this will "crush" stock markets and cryptocurrencies, which have recently shown a significant correlation with the Nasdaq index, the analyst suggested.

Pershikov suggests that the price of bitcoin and other capitalized cryptocurrencies will remain in the range of the last two months with any option to raise the rate. And if even this week new annual lows are set in the crypto market, this is unlikely to lead to a strong drop in the market, the expert is sure. In his opinion, at present, the market is forming conditions for the emergence of a "bottom", and even a significant tightening of US monetary policy will not lead to a collapse of the market.

To minimize risks on the portfolio of crypto assets, it is necessary to use hedging instruments: futures or options on cryptocurrency, which can minimize the consequences of falling prices against the background of the actions of the US monetary authorities, recommended a leading analyst at 8848 Invest.

As an example, he cited a put option (a contract that gives the right to sell assets at a predetermined price at a set time) with an execution price of $ 20 thousand on July 29, which is now worth 1.1%. It will allow you to be in a short position on bitcoin, if the price at the time of expiration (expiration of the contract) is lower than the execution price, while the cost of hedging is very profitable, the analyst believes.

"Bitcoin can head to an annual minimum"

The last few days there was a chance for the growth of cryptocurrencies, but the wedge on the technical chart of bitcoin was broken down, and the quotes went according to the bearish option, said Cryptorg CEO Andrey Podolyan. He suggested that now, until bitcoin drops to the level of $ 20.5-20 thousand, there will be no signals for bulls to buy the asset.

According to the expert, there is a high probability that after the publication of the Fed's decision on Wednesday evening, the bitcoin rate will test the above levels. Podolyan noted that, as a rule, during the Fed meeting, the price impulse goes in one direction, and then even stronger in the opposite direction. The above level is well suited for such a movement in order to "rest on it and bounce," the expert believes.

However, he noted that the market expects "something bad and began to collapse in advance." The worst-case scenario suggests that it is possible to prepare for the movement of bitcoin to the minimum of this year, Podolyan concluded.