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Bitcoin Reclaims $29K in Midweek Action as Investors Focus on US Banking Industry and EU Economic Indicators

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Bitcoin (BTC) price bounced upwards late Wednesday in a post-Fed decision mini-rally before returning above $29,000 overnight during Asia's Thursday morning hour. The swift ascent came on the back of the Fed's announcement of 25-basis points (bps) hike to interest rates on Wednesday afternoon.

Though the market appeared unresponsive shortly after the communication, traders pulled a mildly positive reaction founded on a sanguine sentiment that a pause in hikes is now very much a potential outcome in the next meeting. In the last few hours, the flagship cryptocurrency has slid below $29,000 and was tracked to $28,860 at writing. Here is a look at other prevailing events in Europe and everything you need to know about the market this week:

US macro picture

The closure of First Republic Bank and its subsequent takeover by federal regulators earlier this week marked the start of yet another tense month as market participants braced for several macroeconomic influences. The California Department of Financial Protection & Innovation said in a Monday statement that the then-troubled bank had been placed under receivership and its assets sold to JPMorgan.

Reports of the sale surfacing in the Asia trading hours before Wall Street opened put Bitcoin under pressure for the better part of Monday and early Tuesday. While joint action between FDIC (acting as the receiver) and JPMorgan (buyer) may have rescued First Republic, the worst is seemingly far from behind.

Perceptions of failure in the US banking sector

In his remarks after Wednesday's FOMC meeting, Federal Reserve Chairman Jerome Powell tried to ease recent tension in the banking industry.

“There were three large banks, really from the very beginning, that were at the heart of the stress that we saw in early March — the severe period of stress. Those have now all been resolved, and all the depositors have been protected,” the Fed Chair told reporters.

Fresh concerns on Thursday centered on a worsening picture in the banking industry have painted a contrasting picture.

PacWest exploring a sale, observers show concern as banks portray renewed weakness

Regional bank PacWest is the latest to face issues following new reports that the lending institution was seeking to raise money through new investments and other options. Shares of the bank crashed more than 50% overnight after the close of markets amid reports of internal discussions around a potential sale. The lender, based in Los Angeles, is still said to be mulling alternative means like a breakup or fundraising to stay afloat. Though PacWest's current situation is similar to that of other lenders in business with the technology industry, the bank assured that deposits remain unimpacted.

Market commentators have blamed the Fed policies for partially contributing to the banking crisis. Specifically, the aggressive approach to cool inflation has affected industry dynamics by tightening financial conditions resulting in the failures of banks.

Remarking on the First Republic bank situation on Monday at the National Small Business, President Joe Biden guaranteed on Monday that the banking system is ‘safe and sound.' Crypto executives also shared their views on the latest incident of weakness in the banking industry, including Binance chief CZ who retorted the cheer in some sects of the crypto community following reports of First Republic Bank's failure. In a Twitter AMA session, the exchange founder inveighed against those betting on the failure of the banking industry to inspire the propel of cryptocurrencies.

Interest rates decision and other economic data

In continued efforts to tame the overheated economy, the Federal Reserve raised the benchmark interest rate bringing the federal funds rate to a range of 5% to 5.25%. Wednesday's adjustment marks 500 bps worth of rate hikes since the initial increase in March 2022. The latest benchmark bank rate determination, which brings the run of rate hikes to ten, was widely expected. Still, investors were keen on the policy statement and further remarks from Fed Chair Jerome Powell for indications of the US central bank eventually considering a pivot.

The Fed Chair, however, omitted language and comments signaling a potential pause.

“The committee will closely monitor incoming information and assess the implications for monetary policy. In determining the extent to which additional policy may be appropriate,” the Fed said in a statement.

Notably, the tightening of monetary policies has helped bring things under control, at least as seen in the current consumer price index (CPI) annual inflation benchmark of about 5%. The figure indicates significant progress from a four-decade high of 9.1% last June but is still higher than the Federal Reserve's target of 2%. Markets are nonetheless extending bets that the Fed will pivot and initiate a cutting cycle of the interest in the second half of the year.

The midweek market headwinds come on the back of an eventful week in which the Bureau of Economic Analysis delivered expectation-defying gross domestic product (GDP) figures on April 27. The GDP numbers pointed to a slowdown in growth to +1.1% in the first quarter of 2023, below consensus expectations for a 1.9% annualized pace. The rate represented the third consecutive falling quarter after growth figures of 3.2% in Q4 2022 and 2.6% in the three months before. For context, GDP figures ballooned by 2.1% across the entirety of 2022. The Federal Reserve also showed that the personal consumption expenditures price surged by 4.2%, surpassing the estimated 3.7%. The core PCE rose by 4.9% after growing by 4.4% in the last quarter of 2022.

Worth noting, Bitcoin price peaked above 30,000 on Mar 11 for the first time since June 2022, just a day leading up to the release of Consumer Price Index (CPI) data that showed inflation rose 0.1% in March rather than the predicted 0.2%. The Bureau of Labor Statistics reported on April 12 that this was slower than the 0.4% rise in the previous month. The bureau's data also indicated a year-over-year increase of 5%, lower than the 6% recorded in February and short of the anticipated 5.2%. The core CPI, which excludes typically volatile food and energy prices, grew by 0.4%, compared to 0.5% in February and in line with the projected values. On an annual basis, the core CPI changed by +5.6 % to match the predicted figure.

Friday’s U.S. employment numbers are now next in the picture and the potential for continued surprises in crypto markets is very much high.

Europe monetary policy

Investors in Europe this week tracked the release of April’s inflation data for the Eurozone on Wednesday, which came in at 7% in April, a slight rise from 6.9% in March. On Thursday, the European Central Bank (ECB) separately conveyed its monetary policy decision, raising interest rates by a quarter point basis – the seventh successive.

“Underlying price pressures remain strong […] The past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain,” the ECB said in a statement.

Industry experts contend that the European monetary union is now at the end of its hiking cycle as the latest hike is the smallest in the current cycle, which started last July.

Crypto market outlook

Bitcoin and Gold remained unfazed in the midweek market action as investors are unconvinced about the banking industry being in the clear. Markedly, Bitcoin's recovery in the crypto market, albeit diluted in recent hours, is indicative of the asset's growing resilience to industry mishaps and broader macroeconomic uncertainty.

Bitcoin (BTC) price action

Though April saw a flat monthly close, with Bitcoin tracking sideways and capping the monthly returns at 2.8% according to Coinglass data, the flagship crypto nonetheless maintained a green record. In the last few weeks, Bitcoin has posted several fake-outs on the price chart. Bitcoin traded near $28,600 ahead of the FOMC meeting and despite bouncing on Wednesday, its price continues to range below the important resistance zone above $29,200. These multiple failures to set up support above $30,000 have left bullish traders frustrated.

Gold outshines Bitcoin amid banking crisis

Gold has also delivered outside the crypto market with the price of the yellow metal setting a new all-time high earlier today. Gold price is up 12.40% this year compared to Bitcoins 74% YTD returns. Over the same period, the Nasdaq Composite has risen around 16% while S&P 500 is up%.

Crypto Fear & Greed Index

Glassnode analysts noted in the latest edition of the weekly newsletter, that there is still room for the flagship crypto to drop below $25,000. Not only does the $30k height put new investors in decent profit margins. The overall market sentiment as gauged by the Crypto Fear & Greed Index has continued hovering in the ‘greed' zone.

Bitfinex analysts earlier this week separately projected Bitcoin's volatility to taper in the coming weeks based on the derivatives market data which suggests the asset is in a “transitionary phase” associated with a halt in price trends. The researchers noted that Bitcoin's volatility is set to subside in coming weeks as the BTC/USD pair assumes sideways trading going forward.

“While the direction is not so apparent via volatility metrics, these readings support our theory of Bitcoin being in a ‘transitionary' phase where the price will stop trending in either direction and the washing out of leverage as well as short-term price speculators will take place.”

Bullish commentators opine that more gains could be forthcoming

Some analysts are calling more gains in the price of the flagship asset. Matrixport forecasts that a 20% jump to around $36K could be on the cards for Bitcoin if it sees a positive breakout from the ‘narrowing wedge' it is currently trading within.

“Transactions on the Bitcoin network have reached new all-time highs as the number of active addresses on the Bitcoin network has remained strong, near 1 million addresses […] It's tough to be bearish when Bitcoin breaks higher, buybacks support stocks, the Fed appears on hold, Bitcoin transaction data is positive, and the sentiment is turning more (irresponsibly) positive.” Matrixport's Head of Research Markus Thielen theorized.

This would however also depend on a boost in the macro environment.

To learn more about Bitcoin, check out our Investing in Bitcoin guide.

Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.