Fed Chair Powell's Comments Shift Rate Projections; Bitcoin Holds Warily

Thoughts of bitcoin BTC$86,690.24 recapturing its 20-day moving average this week diminished Tuesday as a troubling inflationary picture took center stage once again.

Less than three hours after U.S. Federal Reserve Chair Jerome Powell highlighted inflation’s intransigence in testimony before the U.S. Senate Banking Committee, bitcoin’s price remained above $22,000, well off its highs of the past month, with little chance of the price going higheramid the type of increasing monetary hawkishness that has historically discouraged investors.

At 9 a.m. ET, markets were assigning a 70% chance to the Federal Open Market Committee (FOMC) boosting interest rates by 25 basis points (bps) during its March 22 meeting.

But by 10:30 a.m. ET, as Powell testified, the probability of a 25 bps increase fell to 46%, and by 12 p.m. ET the probability fell to 37%.

Last month, with macroeconomic data heading in a more favorable direction, markets saw a 98% chance for a 25 bps increase.

To be sure, BTC and ether ETH$2,825.98 prices have been resilient even as jobs and price data has soured. In the initial hour after Powell’s comments, bitcoin and ether fell 0.30% and 0.44%, respectively, before quickly regaining lost ground.

Still, instead of bitcoin’s price recapturing its 20-day moving average, the overriding question now is whether it can even hold its 50-day moving average. Moving averages offer longer-range pictures that can help investors evaluate the strength of bull and bear markets.

BTC and ETH prices are now within 2% and 1%, respectively, of the lower end of their Bollinger Bands. A breach of the lower band would imply an outsized decline from its prior mean, and is viewed as a bearish signal. Prices for BTC and ETH were near the upper range of their Bollinger bands less than two weeks ago.

During his testimony, Powell emphasized that while inflation has moderated, it remains “well above” the long-term goal of 2% and still has a “long way to go.” Most striking about Powell’s testimony was commentary that recent economic data was “stronger than anticipated.”

The unexpectedly challenging inflation data implies the Federal Open Market Committee, the Fed's rate-setting group, is behind rather than ahead of schedule in its rate decisions and will likely be more aggressive about upcoming rate decisions. The ceiling for rate expectations, which is ranging between 5.125% and 5.625% on the current “dot plot,” is likely to shift higher; in turn, sending the prices of cryptos and other risk assets lower.

In the aftermath of Tuesday’s developments, investors may want to watch long futures contract liquidations for both BTC and ETH. While the volume of liquidations is currently low, crypto price declines will likely create a domino effect as traders are forced out of long positions.