Bitcoin price prediction: 3 Scenarios for trading Powell's first Fed decision

• The Federal Reserve makes an all-important rate decision, led by the first time by Chair Jerome Powell.
• The various moving parts of the announcement are set to move all markets, including the price of Bitcoin.

The US central bank does not see cryptocurrencies as a competition and can influence their price at the moment. How?

The FOMC makes not only a decision on interest rates but also provides guidance on future rates using its collective forecasts, known as the dot-plot. Also, Fed Chair Jerome Powell, which is new to his job, gives his first press conference where he can also send messages. The value of Bitcoin also moves with these messages. The lower the rates, the better for Bitcoin, and the other way around. The event could provide a trading opportunity on Bitcoin.

In this March 21st meeting, the Fed is set to raise the interest rate by 25 basis points. This practical decision is already priced in by all assets, but the messages are not priced in.

3 scenarios for trading the Fed with BTC/USD

1) No change in the dot-plot: If the Fed does not change the projection for a total of three hikes in 2018, this means a slower pace of rate hikes and a better environment for alternative assets such as cryptocurrencies. This scenario is not priced in by the markets and will likely send digital coins and stocks higher. The probability is medium. In this case, the words by Chair Powell will not matter too much.

2) Upgrade of the dot-plot but a soft tone from Powell: The Fed may upgrade the projection for a total of four hikes in 2018. This is partially priced in by markets as Powell hinted that an upgrade is possible in his testimony since the US economy improved. The initial move may slightly to the downside in both crypto coins and stocks, but the move may not be powerful. Markets will want to wait for what the central banker actually says. If he sends a more cautious message, things could change in favor of altcoins and Bitcoin could rally. Therefore, the 30 minutes between the release of the data and the press conference may provide an opportunity. 

What would consist of a softer tone? If Powell expresses concern about wages, which are rising quite slowly, it may open the door to reverting to three hikes. In late 2015, the Fed forecast four hikes in 2016 and eventually raised rates only once. An open the door to a downgrade would allow Bitcoin to recover and rally. This scenario has a medium-high probability as the Fed usually does not want to anger markets too much.

3) Hawkish all the way: If Powell follows up the upgrade of the dot-plot with a very optimistic message about the economy, hinting that the Fed may even raise rates more than four times, it would be a big surprise that would rock markets. By sending a message that interest rates will rise fast, the Fed will send stock markets tumbling down quite quickly and send the VIX "fear index" rising. In such tumultuous events, seen recently on February 2nd and February 5th, the price of Bitcoin followed suit. When Fear, Uncertainty, and Doubt (FUD) rule, everything goes down, including crypto assets. The probability is low.

All in all, the Fed decision may present a trading opportunity on BTC/USD or other Bitcoin financial instruments. 

BTC/USD Technical Analysis

Bitcoin has been bouncing from the lows and trading above the $8000 level, but the general picture is more complicated. The BTC/USD is trading beneath the 50-day Simple Moving Average which comes out at $9,454. The RSI on the daily chart is still negative, below the 50-point mark and not in oversold territory, below 30 points. Momentum is still to the downside but undoubtedly improving. 

The price of Bitcoin is trading in a downward channel. After bouncing from downtrend support, it may find further room to the upside.

Support is located at $7,260, the recent mid-March low. It is followed by $5,918, the trough on February 6th. 

Resistance is at the round number of $10,000 which capped the pair early in March and the next level to watch is the double top of $11,844, a double top last challenged in early March.

More: Fed Preview: Dollar-friendly dot-plot before a Powell punishment?

 

---