Weekly Preview丨Will the Fed Stop Bitcoin from Reaching $28,000? 5 Things to Know About Bitcoin This Week

Bitcoin enters a new week ahead of another key U.S. monetary policy decision, with question marks over the fate of the market.

After reaching its highest weekly close since mid-June, BTC/USD turned more cautious as the Federal Reserve prepares to raise its benchmark interest rate to fight inflation.

While many were hoping that BTC/USD would exit its recent trading range and continue higher, the weight of the Fed was clearly visible as the week began, adding pressure to an already fragile risk asset market.

This vulnerability is also shown in the fundamentals of the Bitcoin network, where miner pressure becomes a reality, and the true cost of mining in a bear market is revealed.

Meanwhile, some on-chain metrics are showing encouraging signs, with long-term investors still refusing to budge.

In a week of tensions for cryptocurrencies, stocks, and more, Cointelegraph offers an analysis of possible market turmoil this week.

Fed to decide on next rate hike in 'another interesting' week

All things being equal, the news this week is undoubtedly a rate hike by the Federal Reserve.

The Federal Open Market Committee (FOMC) will decide on the size of the next interest rate adjustment on July 26-27, which is expected to increase by 75 or 100 basis points.

Inflation in the US, like many jurisdictions, is at a 40-year high, which appears to have taken authorities by surprise as calls for a peak were echoed more strongly.

“It should be another interesting week,” Blockware principal analyst William Clemente concluded on July 25.

The Federal Reserve will make a rate decision on July 27 at 2pm ET, a day that is likely to be accompanied by increased volatility in risky assets.

This is likely to be exacerbated by a lack of confidence among buyers due to low liquidity over the summer, one analyst warned.

“Entering ECB rate hike/FOMC decision/tech earnings amidst the lowest liquidity this year. Market back to overbought. Longs, let it be,” Twitter account Mac10 wrote.

A previous article also pointed out that the second-quarter earnings report could lead to a downside in line with the previous one.

"This year, BTC and risk assets have been higher in the FOMC event, but then sold off, is it different this time?" continued the analysis account Tedtalksmacro.

"At the June FOMC meeting, the Fed announced a 75 basis point rate hike, the largest since 1994. More substantial hikes are expected until inflation 'normalises'."

This week already feels different than last week, even before events started to unfold – Asian markets were flat compared to last week’s bullish tone, which was accompanied by a recovery in Bitcoin and altcoins.

While there is an argument that the Fed is unlikely to raise rates further without hitting the economy, the Tedtalks macro pointed to the labor market as a target for continued rate hikes.

He added: “Bitcoin will struggle to surpass $28,000 until the data deteriorates.”

Spot prices fail to touch key moving averages

Data from Cointelegraph Markets Pro and TradingView show that bitcoin’s latest week’s close was somewhat of a staging ground for bulls.

Despite posting its best performance in over a month, BTC/USD has failed to reclaim the key 200-week moving average (MA) at $22,800.

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

Priced at around $22,500 at the close, Bitcoin began to drop to the bottom of its latest trading range and is still hovering below $22,000 as of this writing.

“Watch to see if we find support at $21,666. Be patient,” popular trader Anbessa told his Twitter followers in his latest update.

Another account, Crypto Chase, meanwhile said that a return to the 200-week moving average would lead to further modest gains.

"Volatility in daily S/R (red box), unable to flip $22,800 (daily resistance) into support. Multiple attempts to do so have failed so far," he wrote next to the annotated chart.

“If price pushes higher again and is accepted, I would look at $22,800 as support for a potential long-term move into $23,200.”

A later update sees $21,200 as a potential bearish target, which also constitutes a support/resistance level on the daily chart.

BTC/USD 1-week candle chart (Bitstamp), 200-week moving average Source: TradingView

Elsewhere, the latest price action was not enough to change the long-term view. According to Venturefounder, a contributor to CryptoQuant, an on-chain analysis company, the macro bottom has not yet appeared, and it may be as low as $14,000.

“In line with past halving cycles, this remains my most plausible prediction for Bitcoin before the next halving: Bitcoin will capitulate and hit a cycle bottom (between $14,000-$21,000) in the next 6 months, Then hover around $28,000-40,000 for most of 2023, and reach ~$40,000 again before the next halving,” reiterated a forecast originally published in June.

Mining Difficulty Returns to March Levels

In a sign that the troubles for miners due to weak prices may have only just begun, turmoil in the bitcoin network is now showing.

Mining difficulty is a measure of competition among miners and is adjusted based on participation. Difficulty has been dropping since the end of June and is now back to levels last seen in March.

The most recent adjustment was particularly notable, reducing the overall difficulty by 5%, heralding a change in miner activity. This is the largest drop since May 2021, and the next difficulty adjustment is expected to drop another 2% in 10 days.

Difficulty adjustment is arguably the most important aspect of the Bitcoin network itself, and it also sets the stage for recovery by leveling the playing field for miners. The lower the difficulty, the "easier" it is to mine BTC, or the lower the energy consumption, because there is less overall competition.

However, the need to subsistence remained a top concern during this period, the data showed. According to CryptoQuant data, on July 24 alone, miners sent 909 BTC to exchanges, the most since June 22, and the difficulty dropped by 5%.

Therefore, this week still does not see a turnaround for miners.

An overview of Bitcoin network fundamentals (screenshot) Source: BTC.com

Cointelegraph also reported that it’s not just the price of Bitcoin that’s making it difficult for miners in the current situation.

Congrats on the MVRV-Z score

One of Bitcoin’s hottest on-chain metrics just crossed arguably the most important level — zero.

On July 25, Bitcoin’s MVRV-Z score returned to negative territory after briefly rising for a week, thereby dropping into territory usually reserved for macro price bottoms.

The MVRV-Z, which shows how overbought or oversold Bitcoin is relative to "fair value," is popular for its uncanny ability to define price bottoms.

Its return could herald renewed price pressure, as there is a two-week margin of error in the accuracy of catching bottoms.

In early July, Cointelegraph reported the worst-case scenario given by MVRV-Z, with a bottom of $15,600 for BTC/USD.

Market sentiment retreats from four-month high

For the cryptocurrency market, if the sentiment data is to be believed, the past week may well have been a brief period of irrational exuberance.

The latest data from the Crypto Fear and Greed Index shows a steady decline in the most positive market sentiment since April.

At 30/100 as of July 25, the index is still described as "fear" driving overall sentiment, but is still 5 points above the previous record 73-day "Extreme Fear" range.

Still, sentiment has recovered sharply since mid-June when the Fear and Greed Index hit an all-time low of 6/100.

Cryptocurrency Fear and Greed Index (screenshot) Source: Alternative.me