Bitcoin receives $28K ‘plunge protection’ to counter new volatility in BTC price.

Bitcoin receives $28K 'plunge protection' to counter new volatility in BTC price.

Let the Games Begin: Analyzing the Impact of the US Federal Reserve on Bitcoin Volatility

BTC/USD 1-hour chart. Source: TradingView

Bitcoin (BTC) traders were bracing themselves for classic volatility on July 26 as the United States Federal Reserve interest rate decision was set to be announced. The market had been closely monitoring Bitcoin’s price action, which was hovering near $29,200 for the past few days. With the Fed rates announcement approaching, Bitcoin volatility became the center of attention for market participants, expecting short-term price swings following the announcement.

Traders have been eagerly awaiting the Federal Reserve’s decision and were particularly interested in the comments from Fed Chair Jerome Powell. It was widely expected that the Fed would announce a 25 basis points rate hike, with minimal chances of a 50 basis points rise. However, what Powell says after the initial rate hike announcement will be crucial in determining the market sentiment.

Fed target rate probabilities chart. Source: CME Group

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Analysts have been closely analyzing the order book composition on Binance, the largest global crypto exchange. According to Material Indicators, one or more entities were preparing for a potential drop in Bitcoin’s price following the Fed announcement. As seen from the order book data, $16 million worth of “plunge protection” bid liquidity was placed just below $28,000, indicating a bearish outlook from certain traders.

BTC/USD order book data for Binance. Source: Material Indicators/Twitter

Beyond the world of Bitcoin, the U.S. dollar’s strength remained uncertain as the Fed’s decision loomed. The U.S. Dollar Index (DXY), which had experienced a modest rebound, started trending downwards, nearing 101. Traditionally, the DXY and Bitcoin were inversely correlated, leading some BTC traders to closely monitor its performance. A popular trader, known as Moustache, drew attention to a similar Bitcoin/DXY scenario as previous Bitcoin bull runs, suggesting that a breakout was imminent.

U.S. Dollar Index (DXY) 1-day chart. Source: TradingView

This year, the DXY has played a pivotal role in Bitcoin’s price movements, following historical trends. Moustache pointed out that in 2017, it took five months from a similar DXY position to reach the peak of the Bitcoin bull run. In 2020, it took ten months. Therefore, Bitcoin traders are advised to remain patient and closely monitor the DXY’s performance as it might hint at potential future price movements.

In conclusion, the awaited US Federal Reserve interest rate decision had a significant impact on Bitcoin’s volatility. Market participants were attentive to the rate hike announcement and the subsequent comments by Fed Chair Jerome Powell. Furthermore, the DXY’s value also played a crucial role in determining Bitcoin’s price movements. Traders closely monitored the interplay between Bitcoin and the DXY to identify potential future price movements. As the blockchain industry continues to evolve, observing the intersections between traditional financial markets and cryptocurrencies will provide valuable insights for traders and investors alike.

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