Bitcoin starts yet another 2022 week in the red with a 2% loss in 24 hours and a 13.5% loss in 7 days. The benchmark crypto has been on a downtrend since the end of 2021 and could potentially dip further due to macroeconomic factors.
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BTC trends to the downside in the 4-hour chart. Source: BTCUSD Tradingview
At least, the above seems to correspond with the general sentiment in the market. The U.S. Federal Reserve is turning more hawkish due to a rise in inflation metrics, hitting new highs for the first time in 40 years.
Thus, turning potential price expectations for Bitcoin bearish as many believe risk assets will suffer in the short term from a shift in the FED’s monetary policy. Economist Alex Krüger recently presented a thesis in favor of the bulls. Via Twitter he said:
This has been extraordinarily bearish due to the speed of the Fed’s turnaround. Raising rates or tapering quantitative easing (QE) should not be bearish enough to change the upwards trend across assets.
The economist claims the recent price action to the downside has been triggered not just by the FED’s intention to modify its policies in light of the rise in inflation metrics, but mostly due to the speed in its decision.
In a short period, the U.S. financial institution changed its position from no interest rates hike to several rate hikes planned for 2022, a reduction in its asset purchase program, and balance sheet normalization. The latter is the most bearish for global markets.
To normalize its balance sheet, the FED would begin a Quantitative Tightening (QT) program which could lead it to sell around $50 billion worth of assets every month. Krüger added the following on the potential implications for the crypto market:
Simple. Crypto assets are at the furthest end of the risk curve. Just as they benefited from extraoridnarily lax monetary policy, they suffer from unexpectedly tight monetary policy, as money shifts away into safer asset classes.
What’s Bitcoin Fate As FED Turns Hawkish?
Under these conditions, Krüger believes Bitcoin could follow the following scenarios in the short term and through the first months of 2022. Depending on the upcoming CPI metrics, to be published this week, BTC’s price could react with a bounce or with a retest of 2021 major support at the lows of $30,000.
A high CPI would trigger the latter, a low the former, but there is a higher chance that Bitcoin could stay in its current range with another attempt to reclaim the mid area around its current levels. This would put BTC’s price close to $45,000 in the short term, but with more uncertainty for Q2, 2022.
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As of press time, BTC took another sweep at the lows and re-visited the $39,000 levels only to quickly bounce into $41,000. Remains to be seen if this price action will be sustainable or if Bitcoin would return to lower levels. In any case, 2022 will be a year full of surprises.