Sentiment in the market is lower as the Federal Reserve’s monetary policy meeting looms.
The Bitcoin market has tiptoed into “extreme fear” territory as the Federal Reserve prepares to meet on Wednesday to decide its next move on interest rate and quantitative easing policies. BTC is trading at around $ 48,000 at the time of writing, nearly 30% below its all-time November high of $ 69,000.
The Fear and Greed Index analyzes market sentiment and emotions from different sources to change a number from zero to 100. The closer the index is to its lower limit, the more fearful the market is of the market. moment. The reverse is true for greed, when people start buying bitcoin out of fear of running out (FOMO). The metric is currently at 16, indicating extreme fear.
As mainstream media reports expectations for the Fed meeting, citing a reasonable likelihood that the central bank will try to curb inflation through faster interest rate hikes, financial markets are poised to change their minds. investment. While that move likely won’t happen until next year, the Fed has acted quickly to keep consumer prices from climbing well above its 2% target.
The market’s expectation for an earlier close of asset purchases is not speculative. At the end of last month, Federal Reserve Chairman Jerome Powell said the central bank’s bond buying program could end sooner than expected amid rising inflation rates and a more robust US economy. Powell added that he and his fellow policymakers would be discussing whether to “complete our purchases a few months early.”
However, tapering is only part of the deal, and an increase in interest rates is the natural follow-up action. Since the start of the pandemic, the Fed has kept interest rates close to zero in an effort to further increase market liquidity and economic relief for participants. Overall, this dynamic prompted investors to seek riskier assets as their traditional investments could no longer generate big profits. If the Fed raises interest rates quickly and ahead of anticipation, the broader market should shift into risk-free mode and tune into “safer” investments, as the risk-reward ratio favors traditional lucrative strategies.
For most investors, Bitcoin is still considered a risky investment. Although the digital currency network has repeatedly demonstrated its ability to protect investors from inflation and lax economic policies and to allow true financial sovereignty to those without access to traditional banking services, its early stage of the adoption curve and its status as a young development have many remain skeptical. As a result, a wider movement of risk aversion is also expected to affect the Bitcoin market.
However, it is not clear if this will happen, as Bitcoin has demonstrated its ability to quickly recover from somewhat damaging events. After China banned bitcoin mining and then bitcoin trading, the network is now stronger than before and has even more hash power to support its consensus protocol. Possible Bitcoin Sell Caused By More Aggressive Fed Hold Could End Up Having The Same Result – a sharp rise after irrational fear has been driven from the market.
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