Bitcoin price rose to an important resistance level as investors refocused on the upcoming Federal Open Market Committee (FOMC) meeting. The coin is trading at $40,200, bringing its total market capitalization to more than $753 billion.
Federal Reserve decision
The Fed is one of the most important institutions in the financial market because of its ability to set the US monetary policy. The bank’s actions often lead to reactions across multiple assets like stocks, bonds, and cryptocurrencies.
Indeed, the recent “irrational exuberance” in the financial market has been credited to the Fed, which has flooded the market with trillions of dollars in liquidity. As part of its coronavirus pandemic response, the bank decided to lower interest rates to a record low of between 0% and 0.25%. It also launched a $120 billion monthly quantitative easing program. As a result, by the end of this month, its balance sheet will have jumped to $8 trillion.
Therefore, there are concerns about how long the Fed can maintain its easing policies now that the economy has made a strong recovery. For example, the unemployment rate has dropped to 5.8% while inflation has jumped to the highest level in a decade.
As such, Bitcoin prices will react to the statement by the Fed that will come out on Wednesday this week. In this meeting, the bank will provide an outlook of the American economy and what it intends to do in the future. Precisely, analysts will be watching the tone in the monetary policy statement.
Previously, the bank has said that the ongoing strong recovery was transitory as it justified its easing plan. As such, any omission of that term will see investors start pricing in an upcoming tightening phase. The immediate impact of this will be a sharp decline in Bitcoin prices. However, the price will likely recover since the Fed will only tighten when the economy is doing well.
Still, the bond market points to continued easing by the Fed. For one, as shown below, the 10-year bond yield has dropped to 1.47%, which is substantially lower than the year-to-date high of 1.76%.
Elon Musk and Jones
The Bitcoin price is also rising after some positive comments by billionaires Paul Tudor Jones and Elon Musk. In a tweet early on Monday, Elon Musk reiterated his support for BTC and said that his company, Tesla, would start accepting the currency after a sharp decline of energy. This was viewed as a positive catalyst for the currency at a time of consolidation.
In an interview with CNBC, Paul Tudor Jones, who is best known for predicting the 2008/9 financial crisis made the case for going all-in on Bitcoin. He attributed that to the lax monetary policy by the Fed.
Meanwhile, further data showed that bleeding in the Bitcoin funds was starting to slow down. Outflows in Bitcoin funds declined to the lowest level in two months.
Bitcoin price analysis
Turning to the three-hour chart, we see that the BTC price has found a strong resistance level slightly below the $40,000 level. At the same time, the coin has formed an inverse head and shoulders pattern, which is usually a bullish signal. The short and medium-term moving averages have also made a bullish crossover. Therefore, there are signs that Bitcoin has bottomed and a volume-supported break above $40,000 will bring more demand for the coins. This will likely see it rise to the next resistance level at $45,000.