Probability of Fed Rate Hike in July Reaches 94.9%: Will Cryptocurrencies Rise or Fall?
Market review
Last week (7.3-7.9), the cryptocurrency market, as a whole, experienced a decline, erasing the gains from July 6th to July 2nd and forming a "reverse V-shaped" volatile trend.
Among them, the total market cap dropped from a low of 1.22 trillion dollars to 1.17 trillion dollars, with a significant decrease of 4%. Afterwards, there was a slight rebound.
The market sentiment index rose initially from 58 to 61, but then dropped to 57. Greed sentiment has weakened somewhat, and there is a greater likelihood of further decline.
Trends of total cryptocurrency market capitalization(blue) and fear greed index(yellow) from January 1, 2023, to July 9, 2023; Source: MacroMicro.
In terms of individual tokens/coins, the overall performance is declining, with a decrease of over 3%. Among them, Solana (SOL) is bucking the trend and performing the best, with an increase of 11%; Litecoin (LTC) has experienced the largest decline, reaching 11%.
The price of Bitcoin (BTC) has dropped by 3.2%, but its market dominance has increased by 0.49% (rising from 49.42% to 49.91%). On the other hand, the price of Ethereum (ETH) has fallen by 4.7%, and its market dominance has decreased by 0.4% (dropping from 19.41% to 19.01%). It can be observed that during a bearish market, BTC shows more resilience and is favored by investors.
Fluctuation range of mainstream cryptocurrencies from July 3rd to July 9th, 2023; Source: MacroMicro.
The probability of the Federal Reserve raising interest rates by 25 basis points in July is as high as 94.9%: Will cryptocurrencies rise or fall?
According to CME FedWatch data, the probability of the Federal Reserve raising interest rates by 25 basis points in July and reaching a range of 5.25%-5.50% is as high as 94.9%. The probability of a 50 basis point increase, reaching a range of 5.5%-5.75%, is 0%. The probability of no rate hike is 5.1%.
Interest rate expectations for July 2023 FOMC; Source: CME FedWatch.
In theory, a Federal Reserve interest rate hike decision implies an increase in various interest rates, aiming to curb inflation through monetary tightening. The reduced liquidity of money typically triggers a decline in financial markets. However, how does this play out in reality?
Based on data from 2022 to the present, after an interest rate announcement, Bitcoin's price shows mixed movements within the first hour, but overall, there is a downward trend on the daily timeframe. Additionally, this period often witnesses intense volatility characterized by sharp fluctuations of "rising before falling.
Bitcoin performance after interest rate decision announcement, gray indicates BTC rising before falling; Source: TradingView.
Currently, the probability of a 25 basis point interest rate hike has already exceeded 90%, indicating a very high likelihood of it happening. Based on the aforementioned data, it can be observed that interest rate hikes often lead to a decline in Bitcoin's price, and this trend has been consistent in the first three rate hikes of 2023.
Based on this, it is estimated that there is a higher likelihood of a decline in cryptocurrencies, led by BTC, after the announcement of the interest rate decision (at 2:00 AM on July 27th). Of course, it is not excluded that there could be a temporary rise followed by a fall, especially considering that such market conditions have become commonplace in the cryptocurrency industry.
Bitcoin: Support at 29,500 / Resistance at 31,500, continues to trade in a sideways range.
On July 3rd, Bitcoin (BTC) surged upwards and approached $31,400 before starting to decline. On July 6th, BTC experienced a decline approaching the lower end of the trading range at $30,000. Subsequently, the bulls attempted a recovery but ultimately faced selling pressure and were pushed down.
It can be observed that BTC has exhibited primarily one-sided movements over the past half month. It first experienced a sustained upward trend, followed by a continuous decline, with two sharp dips in between.
However, it ultimately did not break below or surpass the established range. This is a typical scenario of stop-hunting in the futures market, causing continued liquidation events for traders.
Bitcoin price trend from 2022 to the present; Source: TradingView.
Prior to the interest rate decision announcement, Bitcoin mainly fluctuated within the range of $29,500 to $31,500. This market condition is more suitable for swing trading.
* The content presented above, whether from a third party or not, is considered as general advice only. This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.
