(Kitco News) - The threat of continued interest rate hikes by the Federal Reserve finally took its toll on the cryptocurrency market as Wednesday’s release of the minutes from the last Federal Open Market Committee (FOMC) meeting showed that Fed officials remain intent on proceeding with “ongoing increases.”
The midday release of the FOMC minutes reversed the gains that the traditional market saw during the morning session and resulted in a negative performance from the S&P and Dow, which closed down 0.16% and 0.26%, respectively, while the Nasdaq managed to eke out a slight gain of 0.13% in the minutes before the closing bell.
Data from TradingView shows that the weakness in Bitcoin (BTC) appeared prior to the FOMC release, with the top crypto falling under pressure in the opening hours on Wednesday and continuing to slide lower from there, ultimately hitting a daily low of $23,585 before climbing back above support at $23,800.
BTC/USD 4-hour chart. Source: TradingView
The early weakness was evident in the futures markets, as “March Bitcoin futures prices were weaker in early U.S. trading,” according to Kitco senior technical analyst Jim Wyckoff.
But today’s pullback is no cause for panic as “The mid-week price pause is normal and not bearish,” Wyckoff said, adding that “Bulls still have the firm overall near-term technical advantage as a price uptrend is in place on the daily chart.”
Competing scenarios
Eight Global founder and CEO Michaël van de Poppe noted that “the market is correcting” in his Wednesday market update and provided a bullish and bearish scenario to keep an eye on.
“As always, we see a lot of panic on social media and in various groups as the markets go through a correction,” Poppe said. “When the market goes up there is huge euphoria, and at the slightest correction, everyone starts screaming again that we are going to make new lows.”
The bullish scenario for BTC notes that the recent range high represents a crucial area where many traders take profits, while others wait for a break of this level before opening a long position. Currently, BTC is trading below the range high and appears to be consolidating.
BTC/USD 1-day chart. Source: Eight Global
“What we want to see from here is for BTC to make another attempt to break through the range high, and for the price to close above this range high on higher timeframes,” Poppe said. “So for confirmation of a breakout, we prefer to see a 1D, 3D or even a weekly close above $25,300.”
Further declines from this level are nothing to worry about as long as the price stays above the previously established low, which is found at $21,400 and represents a strong demand zone, Poppe said. “This would also be a great place to open new longs, targeting $28-30k as we anticipate a break of the range high.”
The bearish scenario requires a break in the high time frame uptrend “as BTC has a lot of room to correct but still maintain the higher low structure,” according to Poppe, who noted that “a test of the $21,500-22k level would even keep the uptrend intact, so there is a lot of room for the bulls to defend.”
BTC/USD 1-day chart. Source: Eight Global
This scenario also assumes that the range high has been reached, which, if abiding by the principles of “range trading,” could result in the price returning to the range low from here.
“I consider that probability quite small, because the range low is around the level from after the crash of FTX, and a lot has to happen in the market to push prices back to these extreme levels,” Poppe said. “However, I do think a bearish scenario is possible in which the price is pushed back to the Range EQ ($21.4k),” he added.
In order to confirm the bearish outlook, Poppe is looking for a noticeable deviation from the range high.
One possible way things could play out would be an initial push into the range of $28-30k, at which point breakout traders would enter the market, giving whales the “perfect opportunity” to trap these traders. “The whales can do this by pushing the price back into the range immediately after the breakout,” Poppe said.
“The bearish retest of the range high (i.e. after the price has fallen back into the range) would be the time for me to take short positions targeting ~$22k,” he noted.
At this point, both scenarios have an equal chance of playing out, so it's too early to definitively say what the best course of action is. “Ultimately, it doesn't matter which direction the market moves, as long as you have a plan for both directions,” Poppe said. “At a break of the range high, we want to see the price break powerfully through towards the $28-30k mark. If the price above the range high shows no strength, the chances of the bearish scenario are high and I recommend being cautious with your long positions (or even hedging with shorts).”
Altcoins enter into correction territory
The broader altcoin market followed Bitcoin into correction territory, save a few breakout performers.
Daily cryptocurrency market performance. Source: Coin360
Notable standouts include RSK Infrastructure (RSK), which gained 26.26% to trade at $0.1484, as well as a 21.05% gain for Alchemy Pay (ACH) and a 17.24% gain for Synapse (SYN)
The overall cryptocurrency market cap now stands at $1.083 trillion, and Bitcoin’s dominance rate is 42.4%.
