Bitcoin, Ether Move Toward Oversold Territory in Post FOMC Downturn

Bitcoin and ether declined into oversold territory Thursday, following hawkish comments by U.S. Federal Reserve Chairman Jerome Powell after the central bank halted its 14-month prescription of interest rate hikes.

The degree of hawkishness is open to interpretation, but here’s what we know:

The pause in interest rate hikes and maintenance of the 5.0-5.25% target rate was widely expected, and likely already priced into the market. The following changes from the FOMC’s March projections occurred.

The increase in the projections for Core PCE inflation and the Federal Funds rate are the most alarming.

The market appeared to react that despite recent data indicating progress, inflation remains too high and problematic. Chairman Powell echoed as much in his comments on Wednesday, reiterating a commitment to future monetary tightening, even while emphasizing economic “lags” as justification for the pause.

The analogy is akin to a driver taking their foot off the accelerator slightly, as they round sharp turns, but having no intention of braking, or changing course.

Bollinger Bands breach?

Bitcoin and ether sold off sharply with both assets breaching the lower range of their Bollinger Bands. Bollinger Bands are a technical tool that tracks an asset’s 20-day moving average and plots two standard deviations above and below.

Because an asset’s price is expected to stay within two standard deviations of its average 95% of the time, a breach of the upper or lower range is viewed as a significant event.

Both assets fell near or into “oversold” territory, as ETH’s Relative Strength Index (RSI) fell to 29, while BTC’s fell to 35.

RSI ranges from 0-100, with values above 70 indicating that an asset is overbought, and values below 30 implying that the asset is oversold.

Data from 2015 to present shows that BTC’s RSI has settled between 35 and 36 on 42 occasions with an average 30-day performance of -.01%. ETH’s RSI has settled between 29 and 31 on 24 occasions since 2017, with an average 30-day performance of -15% following.

The abrupt move downward runs counter to Thursday’s price action in traditional markets, as the Dow Jones Industrial Average (DJIA), SP 500, and Nasdaq Composite rose 1%, 0.92% and 0.82% respectively, compared to declines in BTC and ETH prices.

The dispersion in performance could be due partly to the additional regulatory overhang impacting crypto markets, as the Securities and Exchange Commission (SEC), continues to eye crypto markets.

CoinDesk Indices tools highlight the decline as both the Bitcoin Trend Indicator (BTI) and Ether Trend Indicator (ETI) signal that the assets have entered a downtrend phase.

Edited by James Rubin.