Will Bitcoin Recover After Sharp Decline Ahead of Fed Decision?

Bitcoin experienced its highest daily loss since the decline that began from the peak on March 14.

During yesterday’s trading, Bitcoin, rejected once again from the $68,000 region, lost over 8% until the closing, dropping to $61,900. Bitcoin continued its upward trend into the first half of March, driven by ETF inflows, with an extremely positive sentiment prevailing in the market. However, last week’s release of US inflation data led to a decrease in global risk appetite, affecting the entire crypto market, including Bitcoin. As the positive sentiment quickly shifted, investors preferred collective selling in an environment of increased uncertainty. Thus, Bitcoin saw a decline of up to 17% from its peak during this period.

How might Powell’s speech affect Bitcoin?

Market participants’ sensitivity to inflation stems from the possibility of changes in the Fed’s interest rate policy. The interest rate decision will be announced at 21:00 GMT today, followed by Fed Chairman Powell’s remarks at 21:30 GMT. While the interest rate is expected to remain unchanged, Powell’s statements are of utmost importance. If Powell confirms in a hawkish tone that a rate cut will be postponed or that fewer cuts may be made this year, it could negatively impact risky markets. This scenario could increase interest in dollar-based investment instruments, triggering further correction in risky assets such as Bitcoin.

Conversely, if the Fed announcement comes in a dovish tone or a neutral stance is declared, it could trigger optimism in the market, and we may see today’s early buying reactions extending throughout the rest of the week.

Ultimately, despite pricing in positive developments in recent months to reach record levels, Bitcoin has become more sensitive to macroeconomic risks in the past week. This increases the possibility of Bitcoin’s short-term direction being shaped by the post-meeting reaction.

Current state of the crypto market

Looking at the overall crypto market, the total value has recovered by a modest 1%, reaching $2.4 trillion. Although the average trading volume has decreased by 10% since yesterday, it remains at a high level of $160 billion.

Among the top 10 cryptocurrencies in the past week, DOGE, ADA, and ETH were the biggest decliners, while Solana stood out positively, increasing its value by 10%. SOL had risen to $210 last week, but it could not withstand the general market trend this week and has retraced 15% of its gains since the beginning of the week. Another layer-1 network, AVAX, also managed to stay afloat during the recent downturn, recording only a partial decline of 1.2% on a weekly basis.

source: prepared by Melisa Beğiç

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