Selling sentiment engulfs the market, will the rebound wait until after the FOMC meeting?

Author: BitpushNews Mary Liu

On the day before the Federal Reserve FOMC and CPI report release, the crypto market continued to face downward pressure.

According to Bitpush data, during Tuesday morning, Bitcoin fell below the support level of $69,500, dropping 5% to around $66,000, before slightly rebounding in the afternoon and climbing back above $67,400 by the close of the U.S. stock market. As of the time of writing, Bitcoin is trading at $67,387, with a 24-hour decline of 3%.

The Bitcoin pullback has exacerbated the downturn in altcoins, with only six tokens among the top 200 by market capitalization achieving gains on that day.

The best-performing coins saw gains of less than 3%, with Ondo (ONDO), Oasis (ROSE), and Stacks (STX) rising by 2.5%, 2.3%, and 1.6%, respectively. The meme token cat in a dogs world (MEW) experienced the largest drop, falling 18.6%, while MANTRA (OM) declined by 15% and ConstitutionDAO (PEOPLE) fell by 14.2%.

The overall market capitalization of cryptocurrencies is currently $2.44 trillion, with Bitcoin's market dominance at 54.4%.

In the U.S. stock market, stocks opened under pressure and gradually recovered after midday. By the close, the Dow Jones Industrial Average initially fell by 120 points or 0.3%, while the S&P 500 index rose by 0.28% and the Nasdaq gained 0.88%, with the latter two reaching new closing highs. Apple (AAPL.O) rose by 7.2%, approaching a market capitalization of $3.2 trillion and setting a new high.

Interest Rates Expected to Remain Unchanged, Bullish Risk Exposure High

To address the escalating inflation, senior Democratic Senator Elizabeth Warren wrote to the Federal Reserve urging it to consider lowering interest rates. They believe that the interest rate hikes aimed at curbing inflation will drive up costs for housing, construction, and auto insurance, exacerbating the problem and potentially pushing the economy into recession, "forcing thousands of American workers to lose their jobs."

Nevertheless, the Fed Watch tool from the Chicago Mercantile Exchange indicates that the probability of interest rates remaining unchanged this month is still 99.4%.

Market analyst Bloodgood stated, "While no one expects the FOMC to change interest rates, the key question is whether the Federal Reserve may lower rates in July and September, as the possibility of a rate cut at the Fed meeting on September 18 (with the likelihood of two rate cuts close to 5%) and the possibility of maintaining rates unchanged is nearly 50/50. Any hints from the Fed or inflation data affecting these probabilities will also be reflected in the price charts."

Secure Digital Markets noted, "BTC buy orders are accumulating between $66,000 and $66,500, while sell orders are concentrated between $68,000 and $68,500."

Meanwhile, Bitcoin's correlation with traditional risk assets is higher than usual. A chart released by K33 analysts shows that Bitcoin's correlation with the U.S. stock market has reached its highest level in 18 months, with the 30-day correlation coefficient between Bitcoin and the Nasdaq rising to 0.64 for the first time since 2022.

They stated, "Bullish traders over the past two weeks are currently at a loss, with nominal open interest increasing by 32,000 BTC since Bitcoin last traded at the current price."

Will the Rebound Wait Until After the FOMC Meeting?

Bloodgood remarked, "So far, the second quarter has been unstable, but this is not surprising considering Bitcoin's seasonal trends over the years. Typically, the performance in the second and third quarters is much worse than in the first and fourth quarters, which somewhat validates the popular saying in the crypto market—'Sell in May and go away.'"

Bloodgood cautioned traders, "However, it should be more accurately stated as 'Sell a little before May,' because BTC often underperforms the S&P 500 in May, and selling in May makes more sense. Regardless, I remind everyone not to place too much emphasis on seasonal trends—especially for an asset class that has a relatively short history and has undergone significant changes in market dynamics during this brief period—this is just one of many data points to consider."

Regarding Tuesday's price drop, Bloodgood pointed out, "We found that the BTC price has fallen below the breakout level, marking another false breakout. If you want safety, you need to wait for the weekly close. The current trading price of Bitcoin is around $67,000, printing a double top pattern on the weekly chart, which is typically a strong bearish signal."

He believes that from the daily chart perspective, the next target is the daily support level of $64,650. If BTC tests and successfully breaks through that support level, a strong rebound is expected. Otherwise, traders may face "a miserable summer."

Michaël van de Poppe, founder of MN Trading, stated on the X platform that he believes the real rebound in the cryptocurrency market will come after the FOMC meeting.

He noted, "After previous FOMC meetings, the market has quickly rebounded, with Ethereum rebounding 20% multiple times after previous meetings, and since the Fed's most recent meeting, Bitcoin has also surged over 20%."

He added that the conclusion of the last Fed meeting "marked the end of a two-month adjustment period, with Bitcoin quickly soaring from $57,000 to its all-time high."

Market analyst Crypto Mikey, however, is less optimistic, emphasizing that Bitcoin has been range-bound since March without signs of breaking higher, warning, "This consolidation range may persist until the Fed actually lowers interest rates."