Bitcoin’s Value Hangs in the Balance: Will $28K Support be Broken as Pre-FOMC Excitement Fuels the US Dollar?

"Bitcoin's Price Plummets to Four-Day Lows Despite Fears of US Banking Sector Instability, Bulls Struggle to Regain Control"

Bitcoin prices are hovering near four-day lows despite concerns over the stability of the US banking sector. The cryptocurrency is heading towards the $28,000 support level after the May 1 Wall Street open. At the time of writing, BTC/USD had dropped to multi-day lows, shedding over $1,000 since the weekly and monthly candle close. This comes as suspicions mount over First Republic Bank contagion and amid concerns that another lender, PacWest Bancorp, may be in trouble. Despite the turmoil, US equities were calm at the open, leaving crypto markets on the more volatile end of the risk asset spectrum.

Traders are considering the possibility of a comedown in advance of the Federal Reserve’s decision on interest rates due on May 3. Although this has already been heavily priced in by markets, with a 0.25% hike anticipated as a near certainty, the banking fragility has added to the uncertainty. Data from CME Group’s FedWatch Tool measured the probability of a rate hike at 94% on the day. Meanwhile, the US dollar is showing keen strength to start the week, with the US Dollar Index (DXY) challenging its highest levels since mid-April. Financial commentators are warning that a “huge week” is coming up for the dollar, with defensive positioning expected leading up to Wednesday.

Tedtalksmacro, a financial commentator, has argued that markets should not expect the Fed to hint at a pivot or freeze of rate hikes at this week’s meeting. This in itself is boosting the dollar and risk-off sentiment. The commentator also flagged key correlations for observers, including DXY versus BTC. While DXY higher typically means risk-off, context matters, and it is important to consider whether it is driven by a move in another currency.

Bitcoin’s behavior has been “eerily similar” to First Republic in the past, according to Marty Bent, founder of crypto media company TFTC. PACW was down nearly 60% year-to-date on the day, while FRC, now suspended indefinitely, had dived 97%. Despite the potential looming continuation, US equities were calm at the open, leaving crypto markets on the more volatile end of the risk asset spectrum. Traders are considering the possibility of a comedown in advance of the Federal Reserve’s decision on interest rates due on May 3. Although this has already been heavily priced in by markets, with a 0.25% hike anticipated as a near certainty, the banking fragility has added to the uncertainty. Data from CME Group’s FedWatch Tool measured the probability of a rate hike at 94% on the day. Meanwhile, the US dollar is showing keen strength to start the week, with the US Dollar Index (DXY) challenging its highest levels since mid-April. Financial commentators are warning that a “huge week” is coming up for the dollar, with defensive positioning expected leading up to Wednesday.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Martin Reid

Martin Reid

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