First FOMC, then BTC, Finally Alts

Crypto Compass 3

• Bitcoin is showing great strength coming into a charged week. The price reached over $28k, holds over $27k, and the risk of a pronounced drop is low. The Bitcoin Risk Signal shows a similar bullish structure to March-April 2020 and 2021 summer.

• The market is already positioned for a 25bps hike on Wednesday, so if the Fed proceeds to raise rates, the market shouldn’t react as aggressively. If the Fed pauses, however, we will see a strong move to the upside.

• The market seems to be positioning for a bullish outcome. The price dynamics between puts and calls, in the options market, suggest that the demand for calls has increased substantially despite bitcoin’s break below $28k. Notice the low 1-month 25D Skew indicating more expensive (higher demand) calls with respect to puts.

• However, implied and realized volatility have increased and TradFi shows signs of cautiousness.

• It seems that investors have begun to position themselves ahead of the FOMC meeting, setting robust buy and sell walls around $25.5k and $30k respectively.

• We expect volume to decrease and bitcoin’s price action to lose some steam going into the meeting. The biggest risk is the number of longs opened in the perpetual market from $27-$28k that could trigger liquidations.

• Bitcoin continues to outperform alts, but its dominance is reaching a significant resistance level, suggesting that a shift in capital flows (from bitcoin to altcoins) is near.

• The market is waiting on the FOMC - the last catalyst - and depending on the outcome the market will transition into full risk on. Once bitcoin makes its next move altcoins will react as investors chase the next 2x move.