Bitcoin is holding in a tight range as investors focus on Wednesday’s monetary policy statement from the US Federal Reserve, which could provide guidance on how the central bank should act and create volatility in financial markets.
The cryptocurrency has traded in a tight range of $ 39,400 to $ 41,300 since Monday’s European trading hours, data from CoinDesk 20 shows.
“The market is completely neutral before the Fed with just a few spot purchases,” said Brian Tehako, chief investment officer at Warwick Capital Management. “Traders are waiting for the Fed’s announcement.”
According to Singapore-based QCP Capital, the event is likely to trigger a binary market reaction. Binary events are dramatic developments that trigger large movements in both directions.
“If the Fed remains cautious” [retains pro-stimulus bias]”Cryptocurrencies would have the greatest upside potential until at least September, given the over-selling we have seen since CPI pressure in May compared to other macro markets,” noted QCP Capital on its Telegram channel.
Bitcoin rose from $ 58,000 to nearly $ 30,000 in the eight days to May 19. The sell-off began after official data released on May 12 showed the US consumer price index rose to its highest level in nearly three years. This renewed fears that the Fed would begin to phase out liquidity-boosting incentives earlier than expected.
However, while Bitcoin fell on Fed fears, traditional markets remained resilient, with gold ending May up 7.8% and stocks remaining strong.
That makes Bitcoin and cryptocurrencies in general look relatively cheap, which goes into the Fed’s statement, and that is how they could benefit most from a sluggish outcome.
On the other hand, a restrictive surprise could weigh on asset prices. “If they are hawkish on Wednesday then all bets are gone and we would expect” [crypto] Market to reach the recent lows again, ”said QCP Capital.
According to Patrick Heusser, head of trading at Zurich-based Crypto Broker AG, the pain trade could be a “risk-off” reaction that would lead to an increase in safe currencies such as Swiss francs, yen and US dollars, and a sell-off in commodities and stocks. “The risk-off could also bring losses for Bitcoin,” said Heusser.
The crypto market appears poised for a spike in post-Fed volatility. “The crypto market seems to be a long gamma heading towards the event,” Denis Vinokurov, research director at Synergia Capital, told CoinDesk.
Gamma refers to the speed of change in the delta of the option – the sensitivity of the option price to changes in the price of the underlying asset. That is, gamma measures the rate of change in the option price in relation to changes in spot market prices.
To be long gamma means to hold an option position with a net gamma greater than zero. In plain language: The position benefits from an increase in the price volatility of the underlying.