Last week, Bitcoin staged a rebound towards the $42,600 level after the U.S. Treasury website leaked the details of Biden’s crypto executive order. 

Surprisingly, the White House directive did not impose any restrictions on crypto. Instead, it asked for more due diligence from government agencies on crypto’s potential use cases and impacts. 

The report indicated that U.S. authorities wouldn’t take any swift, major regulatory actions. Consequently, Bitcoin surged 8.2% after the report leaked; however, the spike was short-lived. 

It soon surrendered its early-week gains due to the exacerbating conflict between Russia and Ukraine. The U.S. announced sanctions against oil export from Russia, causing a sell-off in risk assets. 

Adding insult to injury, a 40-year high U.S. annual inflation rate of 7.9% in February spooked the markets about imminent rate hikes and raised the possibility of a recession. 

Traders remain on edge ahead of this week’s FOMC policy decision, where it is highly likely that the United States Federal Reserve will raise interest rates by 0.25 or even 0.50 basis points.  

The current trend indicates more pain for the crypto market in the coming months with episodes of strong volatility. 

All Eyes On The FED

This week is all about the Federal Open Market Committee policy decision for interest rate hikes in 2022. For all intents and purposes, it will be about what the FED says rather than what the FED does this week.

Financial markets have been pricing in a rate hike of at least 0.25%, with the market prepared for 0.5%. However, the FED’s commitment to further rate hikes will dictate the price action of risk-assets.

Should we see the FED turning more aggressive with back-to-back rate hikes planned, it will more likely than not push the U.S. dollar higher and crypto lower.

Moreover, we should also expect a contingency plan from the FED due to the Ukraine crisis. It will be interesting to see how the central bank reacts to the negative effects of the ongoing conflict. 

The European Union is also posing a threat to cryptocurrencies this week with a possible ban on Proof-of-Work (PoW) cryptocurrencies citing environmental concerns. EU members will vote on the crypto bill on Monday. 

On Thursday, the Bank of England (BoE) will release its meeting minutes on interest rate hike plans. Combined with the U.S. Fed’s decision on Wednesday, these events pose a big risk to the niche market.

Expect Volatility 

The on-chain analysis and market sentiments reflect a negative bias over the coming months. Given the current macro conditions, I tend to side with the market’s bias. However, there’s an off-chance that the price action may surprise short traders and investors sitting on the sidelines. 

The long term on-chain indicators like Stablecoin Supply Ratio, Dormancy Flow, and MVRV ratio (Market Value to Realized Value) have signaled oversold conditions for the last couple of weeks. 

However, the short-term indicators like SOPR (Spent Output Profit Ratio), Token Age Consumed, and whale activity still suggest negative flows. 

Over the long term, the supply of Bitcoin relative to stablecoin reached the lower limit of the Bollinger band in February. It implies that a lot of dry powder in stablecoins is sitting on the sidelines.

Bitcoin: Stablecoin Supply Ratio. Source: Glassnode

Similarly, the MVRV ratio reached 2021 bottom levels, indicating that the bullish vapourware has evaporated. However, the buyers continue to wait on the sidelines, given the current macro conditions. 

Moreover, this Saturday, some long-term holders recorded a large movement tracked by the Token Age Consumed (TAC) metric. 

The movement of old wallets usually means that holders are moving their BTC from old wallets to unload their positions partially. This sounds reasonable for investors preparing for an economy with high gas and food prices.

Bitcoin’s Supply-Adjusted Dormancy chart shows an increase in movement of old wallets. Source: Glassnode

Similarly, the SOPR indicator suggests that short-term buyers are underwater, with considerable weakness under $42,000. 

However, the extent of the negative bias increased significantly last week, opening up the possibility of a short squeeze. The funding rate for perpetual Bitcoin swaps has been negative since the start of 2022.

Bitcoin’s negative perpetual bias. Source: Twitter

Historically, Bitcoin’s price action has always punished bears in the derivatives market. The sentiment indicators for the crypto market like the Fear and Greed index are also near previous bottoms. 

This brings me to a controversial conclusion to this section. This week, I expect a lot of volatility in Bitcoin, starting with a short-squeeze to the upside. However, I don’t think that the trend will last for long. 

Depending on how long-term holders and whales react to the upside, I’ll analyze the medium-term picture for Bitcoin. As of this moment, the whales and long-term holders have engaged in sell-mode, waiting for the global turmoil to end. 

Bitcoin’s Bollinger Watch

Initially, I gave BTC about a 90% chance of heading towards the $30,000 level before seeing $50,000 again. 

However, I will revise my forecast and give it a 70% chance because the correlation between crypto and the major U.S. indices weakened last week. 

I suspect that the crypto market will stage a major move after the Federal Reserve rate decision. With that, it’s probably best to mark the technical levels of interest for several possible scenarios. 

The Bollinger Band (BB) indicator on the daily time frame suggests range-bound conditions between the $35,000 to $43,800 price zones. Traders betting on medium-term swing moves must head with caution until the range is broken. 

The weekly time frame provides a much more forward-looking price forecast. The weekly Bollinger Bands are trending between $28,000 and $63,000, with a slightly bearish bias as the bands are tilting downwards.

The mid-point of the band is around the $47,000 level, which marks an important pivot for Bitcoin. 

Putting it all together, if $35,000—the lower limit of daily BB indicator—cracks, we could see a run at the lower level of the weekly BB at $29,000. On the other hand, if it holds, we could see a bullish reversal to $43,800 or even $47,000.

BTC/USD Daily price chart. Source: Trading View

ETH Bottom Fishing

The price action surrounding Ethereum has been strictly bearish for some time now. ETH has posted five consecutive bearish weekly closes.

As things stand, the saving grace for ETH is a bullish double-bottom pattern on the daily chart, which has formed after the last bounce from the $2,300 level.

Should we see this double-bottom pattern holding this week, it could be time to start looking for a rebound in Ethereum towards the $3,200 and possibly the $3,600 resistance level.

On the other hand, if the price closes below $2,450, it will start negating the double bottom pattern, and it could quickly drag ETH to sub-$2,000 ETH/USD. The primary bearish target is around the $1,950 and $1,700 support zones.

ETH/USD Daily price chart. Source: Trading View

Bonus Analysis: Charting Gold  

It is hard to argue that gold and Bitcoin have had an inverse relationship for much of 2022, especially with both heading in the opposite direction and BTC garnered a reputation as a risk-on asset.

The big decoupling began when the inflation rose above 7% in November and the U.S. FED decided to turn the money printers off. 

Consequently, the yellow-metal got into the groove as the safe-haven asset of choice. The fact that gold continued performing well during war time has only exacerbated the uptrend.

Gold is now at a critical juncture, and a break above $2,060 is required to activate what looks almost certainly to be a monster cup-and-handle pattern, with an upside projection of about $1,000.

XAU/USD Weekly price chart. Source: Trading View

BTC bulls could be in for a lot of pain if the cup-and-handle is activated, and even more so if it ignites on the back of more bad news from the Ukraine conflict. 

The implications are simple if the pattern activates: more suffering for crypto as traders pile into commodities. 

On the other hand, If we see a resolution to the conflict, the opposite is also true. And, we will likely see a big shift back into risk-on assets and a strong reversal in precious metals.

The events surrounding the FED meeting are likely to have profound implications for crypto and broader financial markets this week. It would be folly to underestimate the impact on the market if the FED comes out overly hawkish or more dovish than expected.

The persistent negative sentiments and the fact that Bitcoin has held support at $38,000 does instill optimism for a quick bounce to the upside. However, betting under current macro conditions comes with considerable risks as the reversal can come in no time. 

With that said, crypto has taken a beating lately, with the easy days of the easy gains in the rear view mirror. But I do have an optimistic view for the long-term.

Markets always have cycles and asset classes always have periods of difficulty, where they run out of favor, and other asset classes take their place. This is why capital preservation and a big dose of realism are necessary right now.

Will crypto bounce back? Personally, I have no doubts. It just comes as another opportunity to pick up fundamentally sound cryptos at bargain levels. 

And just like the famous Gordon Gecko quote “Don’t run when you lose. Don’t whine when it hurts”, you just need to be around for when the turning point comes, and have sufficient capital to play the game of speculation when the good times return.