Bitcoin is keeping a close range as the focus turns to the U.S. Federal Reserve’s monetary policy statement on Wednesday. Which may suggest tips on the central bank’s course of action and inject volatility into financial markets.
The cryptocurrency is trading in a narrow range of $39,400 to $41,300 since Monday’s European trading hours.
“The market is completely neutral ahead of the Fed with only a little spot buying,” Brian Tehako. That is what chief investment officer at Warwick Capital Management, said. “Traders are waiting for the Fed announcement.”
Moreover, the incident is probably to have a binary market reaction. according to Singapore-based QCP Capital. Binary events are dramatic expansions that sparks big shifts in either direction.
“If the Fed remains dovish (retains pro-stimulus bias), cryptocurrencies would have the most upside potential until September at least. By, given the overselling we’ve seen relative to other macro markets since May’s CPI print,” QCP Capital wrote in its Telegram channel.
Bitcoin tanked from $58,000 to nearly $30,000 in the eight days to May 19. The sell-off started after official data got out on May 12. It showed the U.S. user price index surged to the highest level in approximately three years. That renovated fears of an early Fed taper. The slow undoing of the liquidity-boosting stimulus.
But, while bitcoin decreased in the wake of Fed tightening fears. Usual markets stood resilient, with gold ending May with a 7.8% gain.
That’s left bitcoin and other cryptocurrencies in common looking. relatively cheap heading into the Fed’s statement. And also, they can benefit them most on the back of a dovish result.
On the other hand, a hawkish wonder could weigh on asset prices. “If they’re hawkish on Wednesday, then all bets are off. And we would expect the crypto market to revisit recent lows,” QCP Capital said.
The crypto market
Based to what Patrick Heusser siad. The pain trade can be a “risk-off” response. It is resulting in an increase in currencies like the franc, yen and U.S. dollar, and a sell-off in commodities and equities. “The risk-off could also bring losses for bitcoin,” Heusser said.
The crypto market looks to be in location for a surge in volatility post-Fed. “The crypto market looks to be long gamma heading into the event,” Denis Vinokourov, head of research at Synergia Capital, told.
Gamma mentions to the rate of change in the option’s delta. The sensitivity of the option’s price to shifts in the price of the underlying asset. That is, gamma scales the rate of shift in the option’s price relative to shifts in the spot market prices.
Long gamma means holding options position with net gamma bigger and better than zero. In simple English, the position will gain from a pick up in price volatility of the underlying asset.