BTC price fluctuated rapidly on November 2nd, 2022 when the US Federal Reserve raised interest rates for the fourth time in a row by 0.75%. Bitcoin price was BTC Other risk assets are heavily dependent on comments from Federal Reserve Chairman Jerome Powell. This affected investors and traders alike.
The global cryptocurrency market led by Bitcoin (BTC), the largest digital asset by market capitalization, has been affected by monetary policy changes. Especially after the US Federal Reserve decided to raise interest rates by 0.75%. This is in a statement shared on behalf of the Federal Open Market Committee.
According to the statement, the committee seeks to achieve maximum employment and reduce inflation to 2% in the long term. In support of these goals, I have decided to raise the target range for the federal funds rate to 3-3/4 to 4%. This is expected to lead to a rise in cryptocurrency prices.
So how did monetary policies become relevant to Bitcoin, and how will the speeches of the leaders of the traditional financial system influence the price movement of digital assets in the future?
The crypto market reacts to Powell’s speech
Over the past week, the cryptocurrency market remained volatile and slightly volatile, but Bitcoin and most altcoins managed to stay in the green after US Federal Reserve Chairman Jerome Powell’s speech. Bitcoin rebounded and gained 3%. And he managed again to cross the $17,000 threshold.
BTC traded at $17,318 at the beginning of December before falling back to $16,852 on the morning of December 7th. The cryptocurrency dean posted a weekly gain of 6.79% after Powell’s remarks that the Federal Open Market Committee (FOMC) will likely raise interest rates by 50 basis points rather than another 75 basis points. This gave crypto investors some confidence regarding the future of the emerging sector.
Powell’s signals about inflation and unemployment also helped push Bitcoin’s price higher. Bitcoin’s price rose along with the S&P 500 stock market benchmark, which also saw a 3% gain. And after four hikes by three-quarters of a percent to curb rising inflation. Powell sounded bullish about the possibility of a half percentage point hike in interest rates at the next Fed meeting on December 14th.
Moreover, cryptocurrency analysts have noticed that for some time now the monetary policy of the US Federal Reserve has been affecting the price changes of Bitcoin. Even the bottom of the crypto bear market on December 18, 2021 coincided with the peak of the shadow rate on the fed funds.
Notably, when federal shadow funds rose sharply in December 2021. The bitcoin bear market began. (By shadow funds or shadow system, we mean the totality of activities that are similar to a bank but that take place outside the traditional banking sector. The shadow banking system consists of lenders, brokers and other credit intermediaries who fall outside the scope of regulated traditional banking)
One of the reasons behind the high correlation that the BTC price has seen with regulatory policies may be the widespread adoption of the Bitcoin payment system over the past few years. Additionally, the ancillary market has matured with the arrival of the futures markets and higher institutional interest at the macro level. These reasons have made BTC more closely associated with the traditional financial markets.
The market value of the realized value of Bitcoin
Posted by analyst Benjamin Cowen video On December 3 on his YouTube channel, he indicated that the unemployment rate remains low. Even though the Fed raised interest rates.
Cowen also predicts that if Fed funds rates remain at 4%-5% by the end of the year. BTC entered the new year with some bullishness. Bitcoin and other cryptocurrencies could also rise as an upbeat US jobs report inspires investors to take action in the market. Historically, moderate increases have led to good results for risky assets.
From a chain perspective, the bottom of the market could collide with the shadow fed funds rate peak. Market Value to Realized Value (MVRV) also offers an interesting take on the bitcoin bottom.
And recent analysis by CryptoQuant showed that at the bottom of previous bear markets (December 2021 – all time for the MVRV index) Bitcoin was either overvalued or undervalued.
The shadow of the market value of the realized value of MVRV remained less than one, as:
- 2015: 300 days, lowest point: 0.6
- 2018: 134 days, lowest point: 0.69
- 2022: (currently continuing, 172 days so far), lowest point: 0.74
One can expect the market value of MVRV realization to drop further if the bear market continues due to macro issues. Since the lowest point has not been reached yet, it is difficult to say whether an absolute bottom has been reached.
At the moment, much of BTC’s price movement could depend on monetary policy changes in the macro market. Inflation and unemployment rates can also play a major role in shaping Bitcoin’s price movement in the future.
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