Bitcoin Technical Setup Ahead of January FOMC Meeting

Bitcoin has entered a prolonged period of consolidation ahead of the Federal Reserve’s first policy meeting of 2021 on Wednesday.

The flagship cryptocurrency is currently fluctuating inside a Bollinger Bands setup. It typically tests the upper band as resistance, therefore prompting bears to open short positions towards the 20-period simple moving average in the middle, with a primary downside target near the lower band.

Bitcoin, cryptocurrency, BTCUSD, BTCUSDT
Bitcoin is trading almost 25 percent below its record high near $42,000. Source: BTCUSD on TradingView.com

As of Tuesday, the BTC/USD exchange rate was trading near the lower band levels, awaiting pullback. Meanwhile, certain on-chain indicators, including a Miners’ BTC outflow metric hosted by CryptoQuant, warned about further sell-offs in the market.

“Bitcoin Miners’ Position Index hit the 8-year high. They’ve been moving an unusual amount of Bitcoins lately. It seems they’re continuously realizing profits since 42k. This is one of the reasons why I keep my bearish bias.”

said Ki-Young Ju, the chief executive officer at CryptoQuant.

A bearish assault at this point risks sending Bitcoin to mid-$27,000. The level coincides with the support trendline of the parallel Descending Channel. It has a recent history of capping Bitcoin from pursuing deeper downside targets.

That said, a retest of the Channel support could have traders open a long position towards the nearest achievable upside target, beginning with the 20-period SMA as mentioned above. Else, a breakdown any further below the Channel support would have traders extend their downside target to lower-$27,000.

Bitcoin Fundamental Bias: Bullish

There’s more potential to Bitcoin’s upside in the days and weeks ahead despite what the on-chain indicators suggest. That is partially due to US President Joe Biden’s commitment to passing a $1.9 trillion stimulus package that may weigh negatively on the US dollar and, in turn, drive investors towards riskier safe-havens like bitcoin.

Meanwhile, economists expect the Federal Reserve to keep its expansionary policies unchanged as its official sit for the year’s first FOMC meeting on Wednesday. That said, the minutes out of the January meeting will less likely to have any surprises about taper-tantrum.

As of now, the Fed is buying government and corporates assets at the rate of $120 billion every month. Its chairman, Jerome Powell, has committed to keeping the purchases unchanged until the US economy confirms “substantial further progress.” He also plans to keep interest rates near zero until 2023.

“It does appear the Fed is looking for inflation to run for at least 12 months above that 2% target before they’ll consider raising rates,” noted Jon Adams, senior investment strategist at BMO Capital Markets, in his statements to Yahoo Finance.

Bitcoin’s coming dips—therefore—could attract demand from investors that are looking to step away from lower-yielding government debts and a depreciating US dollar.

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