‘Double top’ is on the BTC chart right before FOMC - 5 things you should know about Bitcoin this week.

Key points: 

• The market is waiting for the decision on interest rate hikes 
• The Federal Reserve is expected to make an announcement Wednesday at 2:00 pm 
• ‘Clear double top’ suggests we can see a downturn 
• On-chain metrics show that the button has not been reached yet

Because of the Fed rate hike decision, there are concerns that Bitcoin probably has reached its top. 

The key week of internal and macroeconomic events is coming, and Bitcoin begins it at the $20,000 - $21,000 levels. 

Closing the highest weekly candle since mid-September, BTC/USD holds higher levels within a macro trading range.

The bulls were trying to shift the entire trend, while we have been getting warnings from conservative market participants on further macro lows to enter next.  

So far we can see sideways, where any internal or external triggers have only had a temporary effect. Is there anything to change that? 

November's first week is about to bring a key event that has the potential to move prices noticeably - the FED decision on interest rate hikes.

In combination with other macroeconomic data, this will form the environment for overall market sentiment.

Bitcoin's monthly close is also coming during this week, which can cause last-minute volatility despite October 2022 being one of the quietest since 2013.

Last days before FOMC

The headline of this week is the meeting of the Fed and its Federal Open Market Committee (FOMC). 

On November 1-2, officials will decide on an increase in the base interest rate in November, which is calculated by an overwhelming majority of 0.75%.

While this would be in line with the previous two Fed hikes in September and July, respectively, markets will be watching for something else - the change in quantitative tightening (QT) could get a big part of the attention. 

The Federal Reserve is expected to make an announcement Wednesday at 2:00 pm EST concerning a decision on interest rates, which it will follow with a statement and economic forecasts.

Federal Reserve Chairman Jerome Powell will deliver a speech at 2:30 p.m. EST, providing the market with further direction.

There are already talks that subsequent rate hikes will get a neutral trend, ending an aggressive policy that started almost a year ago. 

For bitcoin and risky assets in general, this could end up being a major boost as conditions loosen.

But in the short-term commentators are expecting a classic reaction to the upcoming announcement. 

“Think we see a little pullback this week which is pretty typical when the FED will be announcing rates,” said a popular trading Twitter account IncomeSharks. 

“4h showing a double top and downtrend break.”

The attached chart showed that the expected pullback will be followed by more potential growth going forward.

BTC/USD annotated chart. Source: IncomeSharks/ Twitter

An alternative view was offered by analyst Kevin Swanson this weekend, who warned that with "rising" inflation expectations, there is little reason to hope for a reduction in rate hikes in the near future.

“Every time the Stock Market rallied up in this current downtrend, it did so with the expectation of a FED pivot,” he noted:

“Inflation expectations increasing recently making a FED pivot less likely. The trend is ur friend? If so, Stocks find another lower high after FOMC.”

Svenson also noticed that the bullish momentum should “take over” if the Fed should surprise with a raise lower than 0.75%.

“Obviously, this could be wrong if the FED does a ‘soft pivot’ and goes for 50 basis points,” he added:

“If that occurs, the market would get excited and bullish speculation would take over for the time being.”

CME Group’s FedWatch Tool analysis says that the chances of a lower than 0.75% are recently 19%

Fed target rate probabilities chart. Source: CME Group

Meanwhile, in a summary of the FOMC event, popular analyst Tedtalksmacro noted similarities with Swenson's opinion.

“There’s lots of talk about a ‘pivot’ or that ‘the Fed are breaking things and need to stop hiking.’ But, the data says otherwise and points to nothing other than hawkishness again this week,” it said.

“Clear double top” makes talks on BTC downside

Bitcoin managed to avoid significant volatility as it closed a weekly candle on Bitstamp at around $20,625, data from TradingView confirms

This in itself was notable as it was the highest close of a weekly candle in six weeks for BTC/USD.

BTC/USD 1-week candle chart (Bitstamp). Source: TradingView

Meanwhile, the daily chart uses the 100-day moving average as a resistance level.

BTC/USD 1-day candle chart (Bitstamp) with 100MA. Source: TradingView

However, the long-established trading range we see for the last months remains actual, and even last week's rally has not resulted in a significant paradigm shift.

So for analyst Mark Cullen, it's a matter of "wait and see" when it comes to Bitcoin's next step.

In his latest analysis on October 31st, he noted that BTC/USD has come back to a familiar Fibonacci level based on last week's growth while continuing to sideways. 

“Bitcoin pulled back to the 20.4k level at the 61.8 of the last push up & has held it so far,” he explained:

“With the FOMC meeting this week, i wonder if BTC just range between here & 21k until a catalyst pushes it in one direction or the other. Levels are clear, sit & wait.”

Tedtalksmacro concluded in a recent article that macro markets are expecting the Federal Reserve to deliver hawkish statements in its policy meeting this week, and thus even if the Fed remains dovish, markets may react positively.

“Nothing new is bullish — as the market seems prepared for all of the hawkishness that we have heard so far,” he concluded:

“Expect volatility this week and if everything goes smoothly, for a really, really hated rally.”

Il Capo of Crypto, crypto trader and analyst sees two spikes above $21,000 as a “clear double top”. 

His target of a return to the decline and new macro lows, possibly at $14,000, remains in place.

BTC/USD annotated chart. Source: Il Capo of Crypto/ Twitter

Still not the bottom 

There are currently a lot of comparisons between this year and 2018 (Bitcoin's last bear market) - but it could be a case of “too much, too soon” 

On-chain analytics platform CryptoQuant published its analysis the last week, which said that Bitcoin seems to bottom out, but the market is not ready yet. 

“Similar to the bottoms in 2015 and 2018-2019, bitcoin prices have been trading in a narrow range (between $18,000 and $20,000 for almost two months),” it began:

“Price volatility has also dropped to one of its lowest levels ever and surged. When price volatility was this low in the past, it typically indicated that the downward trend was about to end. But in 2018, low price volatility was swiftly followed by a 50% price drop from $6.5k to $3.2k in just one month.”

CryptoQuant supports their theory that the bear market bottom is still far away with two crucial on-chain metrics - MVRV and UTXO Realized Cap.

MVRV divides Bitcoin's market capitalization by its realized capitalization and is, in the words of popular analyst Willy Woo, "useful" for identifying overbought and oversold conditions, as well as macro highs and lows.

The UTXO Realized Cap is the price at which different cohorts of bitcoins were transferred compared to the previous period, indicating profit and loss.

“MVRV and UTXO Realized Cap 6 months and older Age Bands show that the price of bitcoin is in the value range,” CryptoQuant continued:

“However, a reasonable length of time needs to pass before the 1-3 months UTXO Age Band Realized Price is overtaken for a prolonged growth trend. Currently, this level is at $21,264.”

Due to this indicator Bitcoin have to hold the $21,000 level for the trend to change, but the chart shows that this line is impossible to hold for hours, not even weeks. 

“We have seen that market bottoms can be correlated with unusually low volatility in bitcoin prices,” CryptoQuant concluded:

“Nevertheless, many of the on-chain measures we have examined still do not support the conclusion that the price has reached its bottom and is rising.”

The risk of a supply shock is the highest it has been since 2017.

Bitcoin has been dormant for up to a decade but has recently started to move again. Overall, however, the BTC supply continues to become less liquid.

A new report shows buyer interest rising, which could cause a supply squeeze and drive up prices.

Jack Neureuter - a researcher at Fidelity Digital Assets, based on data from Coin Metrics, made a conclusion that the percentage of the supply moved in the past year is now bottomed out. 

Since the end of October 2021, 33.7% of available BTC has left their wallet, this is also an additional reason for the increased volume at $69,000 ATH in November. 

“Put another way, 2/3 of $BTC supply hasn’t moved the past 365 days,” Neureuter added in comments:

“Marginal trading drives prices over the short-term, but large imbalances between supply and demand tend to do so in the long-term.”

Bitcoin % supply last moved in past year chart. Source: Jack Neureuter/ Twitter

Data from analytics firm Glassnode, meanwhile, indicates that the probability of a supply shock is rising.

The liquidity supply shock ratio has been increasing throughout this year and is currently at levels not seen since Bitcoin’s all-time high from the last halving cycle in 2017.

Bitcoin Illiquid Supply Shock chart. Source: Glassnode

Sentiment together with price hit a six-week high. 

The crypto market has seen an improvement in sentiment thanks to last week’s price gains.

In a sign of how easily sentiment can change, the Crypto Fear and Greed Index hit its highest levels in six weeks over the weekend.

The Fear & Greed Index is a basket of factors that determines whether the crypto market is in a bullish or bearish phase and whether a bounce or correction may be on the horizon.

At 34/100, sentiment escaped the “extreme fear” zone in 2022, which is common during this time.

Crypto Fear & Greed Index (screenshot). Source: Alternative.me

In addition, data from crypto analytics firm Santiment showed that long-term holders are planning to hold their assets through periods of volatility.

“With Bitcoin back above $20.7k, traders appear to be content with long-term holding as coins continue moving away from exchanges,” said in a Twitter post. 

Sentiment also found that exchanges now have the ratio of BTC supply at its lowest since 2018 - the year of the last macro bear market bottom. 

“With the ratio of $BTC on exchanges down to 8.3%, it's the lowest seen in 4 years. October has been a big outflow month,” the post stated.

Bitcoin exchange supply annotated chart. Source: Santiment/ Twitter