Inflation and Fed Policy Jitters Sink Bitcoin (BTC) and the Broader Market

Bob Mason
Published: May 6, 2022, 00:24 GMT+00:00

Bitcoin (BTC) and the broader crypto market succumbed to investor sentiment towards Fed monetary policy as inflation fears hit the global financial markets.

Sentiment towards Fed policy hit BTC

Key Insights:

  • On Thursday, Bitcoin (BTC) tumbled by 7.9%, as inflation fears and bets of a 75 basis point rate hike hit the crypto markets.
  • Fed Chair Powell’s assurances from Wednesday failed to provide further comfort after Wednesday’s relief rally.
  • Bitcoin’s technical indicators are bearish, with Bitcoin sitting below the 50-day EMA.

The market reaction towards the Federal Reserve and Fed Chair Powell’s forward guidance from Wednesday was short-lived.

On Thursday, bitcoin (BTC) tumbled by 7.9%. Reversing a 5.18% rally from Wednesday, BTC ended the day at $36,547. BTC slumped to a day low of $35,617 before finding late support.

The correlation between Bitcoin and the NASDAQ 100 strengthened further, evidencing the Fed’s influence on cryptos.

Bitcoin Fear & Greed Index Hits Reverse

Responding to the BTC decline, the Fear & Greed Index fell from 27/100 to 22/100 today. The pullback saw the Index fall back into the “Extreme Fear” zone, reflecting investor fear of more losses.

Last month, the Index hit a month high of 53/100 on April 05, which coincided with Bitcoin revisiting $47,000 levels. Thursday’s sell-off saw BTC fall below April’s low of $37,727

For the Bitcoin bulls, the Index will need to move back through to 46/100 to bring April’s high of $47,433 into play. A marked shift in market sentiment towards inflation and Fed policy would support a breakout.

Index hits reverse in response to BTC sell-off.

Bitcoin Correlation with the NASDAQ 100 Strengthens

The correlation between Bitcoin and the NASDAQ 100 strengthened further on Thursday.

On Wednesday, Fed Chair Powell looked to ease market tensions by removing expectations of an aggressive path to policy normalization.

However, market sentiment shifted on Thursday, with investors betting on an aggressive rate path to curb inflation.

Moves across the NASDAQ and BTC were aligned again, as investors bet on a 75 basis point hike in June.

In response, the NASDAQ slumped by 4.99%.

BTC – NASDAQ correlation strengthens.

Bitcoin Price Action

At the time of writing, Bitcoin was up by 0.09% to $36,580.

Inflation fears sink BTC
A move through to $38,500 would shift sentiment.

Technical Indicators

Bitcoin will need to move through the day’s $37,332 pivot to target the First Major Resistance Level at $39,023. Bitcoin would need broader market support a return to $38,500.

In the event of an extended rally, Bitcoin could test resistance at $40,000. The Second Major Resistance Level sits at $41,538.

Failure to move through the pivot would bring the First Major Support Level at $34,842 into play. Barring another extended sell-off, Bitcoin should avoid sub-$34,000. The Second Major Support Level sits at $33,123.

BTC finds early support after inflation sell-off
Failure to move through the pivot would leave BTC under pressure.

Looking at the EMAs and the 4-hourly candlestick chart (below), the signal is bearish. Bitcoin sits below the 50-day EMA, currently at $38,594. This morning, we saw the 50-day EMA pullback from the 100-day EMA. The 100-day EMA also fell back from the 200-day EMA; BTC price negative.

A move through the 50-day EMA would shift sentiment and support a run at $40,000.

Fed fears leave BTC well below the 50-day EMA
A move through the 50-day EMA would be needed to shift sentiment.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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