Bitcoin Vulnerable to Rate Hike as Traders Underexposed to Downside
Bitcoin's price has been stuck near $65,000 for most of July, and analysts at Bitfinex say the Federal Reserve meeting this week is likely to move it. The CME Group's FedWatch tool shows a 33.7% chance of a rate hike and a 66.3% chance of no change, with a zero percent probability of a cut.
According to Bitfinex analysts, traders have not reinstated downside protection since the crypto market's rally in mid-July, leaving them with their least downside insurance since June. The options market shows that demand for put options has compressed from 6.5 volatility points on July 14 to around 2.2 by July 23.
The analysts also identified a 'supply wall' at $68,000, where the prices of 3.55 million BTC bought in the last six to twelve months cluster. They believe that if Bitcoin's price exceeds this level and funding is below 15% annualized, underwater holders would turn into buyers.
Bitfinex analysts warn that higher interest rates are bad for Bitcoin as they provide investors with a safe return elsewhere, making it difficult for risk assets to attract capital. A dovish outcome at the Fed meeting, which means lower interest rates or quantitative easing, is not on the menu this time around.