Bitcoin week ahead Ep13: A rosy start to an uncertain 7-day period…

Key Bitcoin takeaways:

Bitcoin inched towards $40,000 on Monday but pared those gains due to profit-taking.
The market now watches critical macroeconomic updates, including the Federal Reserve’s meeting on their asset purchase policy.

YEREVAN (CoinChapter.com) — Bitcoin prices exploded on Monday to approach $40,000, a move that analysts credited to the declining bearish bets in the derivatives market and ongoing speculation over Amazon’s likelihood to add a BTC payment option at its online marketplace.

The BTC/USD exchange rate rose to as high as $39,770 following a 12.82% intraday jump. However, the pair’s supersonic move upward later met with extreme selling pressure from daytraders looking to secure short-term profits. As a result, its prices plunged heading into the European session.

Vijay Ayyar, head of Asia Pacific at crypto exchange Luno in Singapore, said over-leveraged shorts drove the prices higher after traders shifted short-term bias to bullish over the Amazon rumor. According to data provided by ByBt.com, over $1.14bn worth of shorts got liquidated in the last 24 hours, among which approximately $730mm accounted for Bitcoin positions.

Bitcoin breaks above key 50-day exponential moving average wave — Bitcoin breaks above the critical 50-day exponential moving average wave. Source: BTCUSD on TradingView.com

While undergoing the upside move, BTC/USD successfully closed above its 50-day exponential moving average (50-day EMA; the cherry wave), a line of resistance that earlier assisted in sending the pair from circa $10,000 to as high as $65,000.

What to expect this week?

Bitcoin’s supersonic start to the new week also anticipated headwinds, partially because of a critical Federal Reserve update on its ongoing bond-buying program and also due to the price heading into a trading area that is notorious for its excessive selling sentiment.

Let’s begin with the Federal Reserve update. The US central bank’s top officials will gather on Tuesday and Wednesday for their first policy meeting since they last announced their intentions to hike benchmark interest rates by the end of 2023.

Fed dot plot (expected). Source: Bloomberg

But this time, they would likely decide on their bond-buying program. This March 2020 policy prompted the Fed to purchase $120bn worth of government debts and mortgage-backed securities every month to contain the recession caused by the coronavirus pandemic.

Aggressive quantitative easing helped to send investors to the safety of what they perceived were better havens than the US dollar and sovereign debts. As a result, even the riskiest assets rose in 2020, assisted by inflationary pressures. Bitcoin, with its anti-inflation narrative, also jumped exponentially.

And now, higher consumer prices have arrived due to the economy’s reopening, supply bottlenecks, and higher demand. That has enabled analysts to predict tapering of bond purchases earlier than usual. A recent poll by Bloomberg found that more than 50% of economists see the Fed begin quantitative tightening at the beginning of 2022.

Nonetheless, Fed chair Jay Powell and New York Fed chief John Williams have clarified that the central bank would keep purchasing bonds until it sees “substantial further progress” in the US’s labor market and inflation figures.

Bitcoin

That lands Bitcoin against a confusing macroeconomic plot. True, recent supportive statements from Tesla’s Elon Musk, Twitter’s Jack Dorsey, and Ark Invest’s Cathie Wood have boosted Bitcoin appeal. Still, its demand could go higher only if the mainstream investors see no alternatives in the traditional markets. A hawkish Fed pours cold water on such a bullish crypto case.

Therefore, it appears necessary to gauge the Fed’s mental direction towards tapering before playing bullish bets on Bitcoin. For now, the benchmark cryptocurrency approaches an area ($35,000-40,000) that has previously invited profit-taking. Thus, it would need to reclaim the range as support to establish a natural upside bias.

Markets will also watch Friday for the Personal Consumption Expenditures (PCE) readings. The Fed’s preferred metric to measure inflation is expected to rise 3.7% in July from 3.4% in June. A consistent rise in consumer prices might boost Bitcoin’s long-term appeal among investors.