Predictions for Gold and Bitcoin Before FED Interest Rate Decision!

The decision to increase interest rates, taken at the meeting of the Federal Open Market Committee (FOMC) on May 3 and May 4, 2022, caused fluctuations in the crypto market. This has led many to believe that the Bitcoin rally will not continue to ATH levels in November 2021. A year from now, it’s important to examine the relationship between interest rates, stocks and crypto markets. Meanwhile, the gold price rose $33 ahead of the Fed’s rate decision. Preparing to test all-time highs, according to analysts

Fed rate decision and the evolving crypto landscape

Despite the initial shock, the Bitcoin rally started. Thus, prices have managed to rise by more than 70% since the beginning of the year. However, in the last 30 days, we have seen entities diverge and chart unique paths.

Top 10 Cryptos by Market Cap. Source: TradingView

This presents opportunities for those interested in on-chain and social statistics. Because it helps them make informed decisions before one coin goes up and the other goes down.

Bitcoin and stocks: A growing correlation

The crypto market has shown an increasing correlation with the US stock market. This trend may have been influenced by the FOMC’s consistent increase in interest rates over the past year. The correlation between these two sectors tightens during the periods when the Fed makes interest rate decisions. Higher interest rates lead to higher borrowing costs, reducing consumer and investor spending. It is possible that this will negatively affect the stock markets and reduce the demand for cryptocurrencies.

Bitcoin Social Volume / Source: Santiment

On the other hand, low interest rates are likely to increase spending. It is also possible that it will spur economic growth and positively impact both stocks and cryptos. Market analysts are keeping a close eye on Fed rate decisions and their impact on the broader economy and financial markets, including the cryptocurrency sector.

Sensitivity of the crypto community to Fad rate decisions

The crypto community is extremely responsive to upcoming FOMC decisions. He will likely react sensitively to the results. A greater focus on money-related issues such as banks, tax, money, wages and stables indicates that the community is watching fiscal policy closely.

Social Trends / Source: Santiment

“We may have reached the top.” A positive consequence of the growing concern is that Bitcoin becomes a more important focus. Bitcoin sharks and whales holding 100 to 10,000 BTC are back to where they started when they started selling in late March.

Bitcoin Whales / Source: Santiment

Meanwhile, stablecoin accumulation, especially USDT (red line) and USDC (blue line), has increased since early June.

Stablecoin Accumulation / Source: Santiment

This market behavior indicates that more organic money is returning to crypto. Meanwhile, the 2024 Bitcoin halving is less than a year away.

Bitcoin rally problematic as network activity slows

Despite the positive signals, there are concerns about the lack of unique addresses interacting on the BTC network. Over the past two weeks, there has been an odd drop in daily active addresses. The utility needs to remain stable to confirm that a breakout could occur, among other bullish signals.

Bitcoin Daily Active Addresses / Source: Santiment

The 30-day MVRV rate (in red) fell below 0%. This means that the average trader over the past 30 days has fallen again. When that happens, there is a lower-than-average risk of being in crypto.

Bitcoin MVRV / Source: Santiment

However, the long-term 365-day MVRV (in yellow) still stands at +25%.

All eyes on Fed rate decision

The relationship between the Fed’s interest rate decisions, the stock market and the cryptocurrency market continues to evolve. As the FOMC continues to influence the broader economy, the cryptocurrency community remains sensitive to changes in fiscal policy. Raising concerns about unique addresses and network activity could hurt the Bitcoin rally. Still, as the 2024 Bitcoin halving approaches, the reaction of the crypto market to interest rate decisions will remain important.

Gold prices stuck at $2,000

The gold market continues to hold its head above water as it trades on either side of $2,000. Huw Roberts, head of analytics at Quant Insight, says consolidation represents fair value for the precious metal in a market of conflicting effects. Roberts says their modeling shows that investors should sit on the sidelines in the gold market and wait to see how the tussle between economic activity and central banks’ fight against inflation unfolds. Also, Roberts says his modeling shows that the fair value of gold is around $1,990. In this context, the analyst makes the following statement:

Sometimes the best trade you can make is to not trade at all. We had a nice jump in March. But we’ve been consolidating for the last three weeks. Also, we don’t currently have an advantage either way.

Rising recession risks and the ongoing banking crisis creating tighter credit conditions provide solid support for gold and precious metals, Roberts says. But on the other hand, persistent inflation that is starting to settle in the economy is forcing the Federal Reserve-led central banks to continue aggressive rate hikes, keeping real yields high. Roberts says QI modeling shows that these two factors are quite balanced. He adds that at the moment, investors should wait to see if central banks can get inflation under control before it wreaks havoc on the economy.

Is the US economy entering a recession?

The cracks in the US economy continue to grow. As you follow on Kriptokoin.com, First Republic Bank was the last bank to collapse in the USA. But Roberts says the US labor market continues to be pretty healthy. Roberts also states that the risk of a systemic collapse in global financial markets has decreased in recent weeks.

QI does not do predictive modelling. Also, it only monitors current market conditions. Despite this, Roberts says he personally expects the global economy to enter a recession. However, he also notes that this is the most anticipated recession in recent history. In this context, Roberts comments:

I think this is because we have never experienced such an economic cycle before. We experienced the pandemic and quarantine, and right after that, there was an armed conflict in Europe. As a result, normal leads and delays are interrupted even more than you would normally see.

The Fed likes to watch this rate!

Gold price rose $33 before the Fed decision. According to analysts, whether gold will test ATH levels this week depends on the Fed rate decision. Markets are pricing in about a 90% probability that the Fed will raise rates by another 25 basis points. But gold is looking beyond May’s rate hike. Because the latest macro data showed signs of cooling down enough to require a break from the fastest rate hike cycle in 40 years.

The latest JOLTS figures showed that the number of vacancies in the US fell to 9.6 million in March, the lowest level in the last two years. In addition, the ratio of vacant jobs to the unemployed fell to 1.6 in March, the lowest level since October 2021. The Fed likes to watch this rate. Also, the Fed justifies its high levels to justify rate hikes. “Even if there is no increase in the unemployment rate, labor market conditions are still easing,” said Paul Ashworth, chief economist for North America at Capital Economics. It is also consistent with a more pronounced slowdown in wage growth soon,” he says.

Market will try to look for dovish interpretation of Fed rate decision

Nicky Shiels, head of metals strategy at MKS PAMP, said, “More than 150 banks went bankrupt during the GFC. In contrast, ‘only’ 4 banks went bankrupt today. But today these bank failures are equal to all assets held by financial institutions during the 2008-09 banking period. More bank bankruptcies, and thus more policy pullbacks and bailouts, are accelerating a 60/40 portfolio rethink and the need for exposure to some alternative assets.”

Focusing on the Fed’s language, Shiels says they expect the phrase “some additional policy tightening may be appropriate” at the March FOMC to become a broader statement. Also, Shiels says, “The degree and flexibility in gold trading/bottoms are indicative that the market will likely try to look for any dovish interpretations.”

Fed’s message will determine whether gold can hit record highs

Bill Diviney, senior economist at ABN AMRO, says a 0.25% rate hike will push the Fed rate to a symbolic range of 5.00-5.25%. “This is roughly the peak Fed rate reached in 2006-8 before the global financial crisis,” Diviney said. There will be no updates to the ‘point’ projections at this meeting. Therefore, markets will look at changes to the policy statement. It will also focus on President Powell’s statements at the press conference,” he says.

The economist does not expect the Fed to signal the end of the tightening cycle in its statement. In addition, Diviney notes that in the last two tightening cycles, the latest increase was accompanied by a statement indicating that it is open to further rate hikes.

OANDA senior market analyst Craig Erlam says the Fed’s message for gold will determine whether it will once again reach record highs of around $2,070. “The Fed must be concerned about tightening credit conditions after the collapse of the three banks,” Erlam said. But he doesn’t want to soften his rhetoric until he has to. The result is that a sharp and abrupt turn from the policy perspective is possible in the coming months. But when it comes to today, a ‘wait and see’ or ‘meeting-to-meeting’ approach is preferable,” he says.