FX.co ★ Bitcoin can benefit from Fed's QT program

The policy of the Fed has become the scourge of the cryptocurrency market and is the root cause of all the negative movements of investors. The sharp increase in the key rate and the start-up program to withdraw liquidity from the markets of high-risk assets hit the crypto market hard. The correlation with stock indices suggests that Bitcoin is not perceived by investors as a defensive asset. After the May meeting of the Fed, the situation only became more complicated, but not everyone sees the picture pessimistically.

Bloomberg senior commodity strategist Mike McGlone said that in the long term, Bitcoin will benefit from monetary tightening. The expert does not identify the impact of the correlation with the stock market and the increase in the key rate. McGlone is confident that BTC and ETH will benefit more from tightening monetary policy, and the current price drop is solely due to the correlation with the stock markets. The analyst also believes that almost all markets fell due to the increase in the key rate, as this is a painful process for any asset class.

After the start of the process of raising the key rate and tightening monetary policy, one can notice a negative trend in the movement of the price of cryptocurrencies and stock indices. Gold also stopped falling, but fixed on a solid support zone. It is quite possible that the current correction of each market is commensurate with investment infusions in the period from 2020 to 2021. With this in mind, we can conclude that the launch of the program to combat inflation really affected the quotes of many asset classes.

However, certain questions arise regarding the likely growth of Bitcoin and the cryptocurrency market in the future. Digital assets and Bitcoin have set new absolute levels just as liquidity has surged. In this respect, investments in the crypto market are commensurate with the performance of the stock market. But as we have already said, a significant difference between stock indices and crypto assets is created by the increased volatility of the latter. Thanks to this property, as well as the low level of legislative regulation, the digital asset market becomes a tasty target for big capital. The "whales" of the crypto market regularly practice squeezing out "weak hands" to get new liquidity. It can be assumed that investors are so sensitive to the current fall also due to manipulation.

Bitcoin's future prospects largely depend on its ability to protect inflation and become a reserve tool. However, as we have already seen, such a practice becomes widespread only when the cryptocurrency is bullish. The winter of 2022 also showed that during massive turmoil, investors prefer gold over BTC. And this despite the fact that the asset was in high positions, and more than 60% of the coins in the wallets were in profit. This suggests that the coin was not in demand as a risk hedging tool even during a bullish trend and a period of consolidation.

As for the reserve fund, the patronage of the Fed comes to the fore in the long term. Tether recently announced that it is converting most of the USDT stablecoin collateral into treasury bonds. This suggests that the Fed's policy of strengthening the USD and other assets that back it is working. The new trend will be tied to the use of assets that are associated with the US dollar as a reserve. And the story with the Luna Foundation and UST once again proved to investors that stability is valued much more than huge profits with high volatility.

Meanwhile, on the 4-hour timeframe, Bitcoin failed to create a head and shoulders trend reversal pattern. The price failed to break through the shoulder line at $32k, after which the quotes began to decline. Despite this, the 4H chart cheered up: the RSI and the stochastic oscillator are moving towards the upper border of the bullish zone. This indicates an increase in purchases and a gradual return of the initiative to the bulls. MACD also made an upward spurt and is moving near the zero mark. The metric is expected to reach the green zone soon. In general, the situation indicates the development of a medium-term upward trend, but taking into account fundamental factors, the probability of its implementation is low.