Ethereum pares gains, Bitcoin pushed under $40K as the Fed is set to reveal tapering plans

Published at: July 28, 2021

Ether (ETH) and Bitcoin (BTC) pulled back on Wednesday as investors awaited fresh guidance from the United States Federal Reserve.

ETH’s price slipped by 0.57% to $2,857, while the BTC/USD prices were up 0.68%, changing hands at $39,739 at around 10:30 am EST. Nevertheless, both pairs reached their current levels following a downside correction from their respective intraday highs of $2,391 and $40,925, respectively.

Traders raised their exposure in the cryptocurrency market after Tesla’s Elon Musk, Ark Invest’s Cathie Wood and Twitter’s Jack Dorsey spoke in favor of Bitcoin during “The ₿ Word” conference last week. More tailwinds came amid speculations about Amazon’s plans to accept BTC as a payment, a rumor that the retail giant later denied.

Ether, whose 30-day correlation with Bitcoin stands at 88%, moved in tandem with Bitcoin. Their synchronized price trends continued into the New York trading session Wednesday, just as markets waited for the U.S. Federal Reserve to reveal its tapering plans.

Speaking of tapering...

U.S. central bank officials will conclude their two-day policy meeting on Wednesday, with a statement scheduled to come out at 2:00 pm EST. Investors’ focus will be on signals from Chairman Jerome Powell about how and when the Fed would start unwinding its asset purchase program and any potential shift in its view on inflation.

In detail, the U.S. Consumer Price Index has boomed, hitting 5.4% on a year-over-year basis. As a result, as many as 54% of Americans think that the U.S. economy is in poor shape, according to a poll conducted by The Associated Press-NORC Center for Public Affairs Research.

But the Fed has rubbished the higher consumer prices by calling them "transitory" in nature. As a result, Powell said in his congressional testimony earlier this month that the central bank would continue its $120-billion-a-month bond-purchasing program, raising concerns that it could cause further inflationary spikes, especially in the housing sector.

Brian O’Reilly, head of market strategy for Mediolanum International Funds, noted that there are no signs of inflation cooling down in the sessions ahead, so the Fed might just start looking into the rising consumer prices, if not putting a pause on its bond-buying program. He added:

“There will be no change, but they are at the stage where they are starting to talk about talking about tapering.”

What happens to Bitcoin and Ether next?

The Ether and Bitcoin markets’ biggest vulnerability is that their valuations may not be sustained without expanding liquidity from the Fed.

Meanwhile, the strong underpinning is that there is substantial capital sitting on the sidelines waiting to enter the market, with a DataTrek Research report noting that retail investors on Robinhood alone hold $400 billion to enter markets on the next big dip. Fred’s Retail Money Fund also notes that retail investors hold over $1 trillion versus $643 billion in 2015.

“We live in an unprecedented time of fiscal and monetary stimulus,” noted Anthony Pompliano, a prominent crypto advocate and a partner at Pomp Investments, in one of his recent notes to clients. He added that investors would do so much better while putting money in financial instruments than holding cash or negative-yielding assets. He said:

“If our government and economic organizations continue to outlaw bear markets and ban market corrections through their intervention actions, then the market will only be allowed to go higher and higher over time.”

Given 20% of the American public know BTC well enough to hold it, and at current growth rates, shitting on #Bitcoin will be political suicide in the next few years.

— Willy Woo (@woonomic) July 28, 2021

Tim Frost, CEO of DeFi wealth management platform Yield App, weighed concerns over analysts’ renewed upside outlook for Ether and Bitcoin.

He told Cointelegraph that the markets could resume their downtrend following “a brief rally,” wherein Bitcoin falls to as low as $20,000, taking Ether lower alongside. He added:

“An altcoin revival is a very long way off. The Crypto Fear & Greed Index is also still very much skewed towards fear — indeed, for the longest period, it has ever been skewed in that direction. This isn’t the beginning of a new bull run as much as the bear being caught off guard taking a nap.”

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.