Bitcoin (BTC) and the Broader Market Receive a FED Chair Booster

It was a mixed session for Bitcoin (BTC) and the broader crypto market on Tuesday. Market jitters over FED monetary policy had continued to weigh on the crypto markets ahead of FED Chair Powell’s testimony on Tuesday.

FED Chair Powell Testimony and Impact

Powell’s comments were market friendly, however, providing Bitcoin and the crypto majors with much-needed support.

Market reaction to testimony was also positive across the U.S equity markets. The FED Chair’s view that the economy can cope with tightening monetary policy was key. Powell noted that the economy has expanded rapidly in spite of COVID-19. On the inflation front, Powell said that inflation needs more attention. The FED wants to ensure that high inflation does not become entrenched. Powell also noted that, while a move on monetary policy to normal is needed, it’s a long road to normal.

The upside on the day was modest by crypto standards, however, with U.S inflation figures due out later today. Another pickup in inflationary pressure would support U.S bank forecasts of 4 rate hikes this year. On Monday, news of Goldman Sachs projecting 4 rate hikes had sent Bitcoin to sub-$40,000 levels for the first time since September.

In spite of FED Chair Powell’s comments, the Bitcoin Fear & Greed Index fell back from 23/100 to 21/100, breaking the upward trend seen since an 8^th January low of 10/100. Uncertainty ahead of today’s U.S inflation figures likely contributed. A level in the red and close to or at zero indicates investor fear of further price declines.

Lawmakers Push for Updates on the FED’s Review on CBDCs and Stablecoins

While the focus of Powell’s testimony was largely on tackling inflation and monetary policy, digital assets were also discussed.

Lawmakers raised questions on why the FED had yet to release its review on central bank digital currencies (CBDC) and stablecoins. While Powell stated that the FED will release the review in the coming weeks, Senator Brown talked up the dangers of cryptos to the U.S economy. Senator Brown is Chairman of the U.S Senate Committee on Banking, Housing, and Urban Affairs.

Senator Brown’s has shared his views on cryptos before. Last month, the Senator had been less than impressed during a Stablecoins committee hearing. The latest negative comments came in the wake of news hitting the wires of a U.S Congress sub-committee preparing a hearing on the impact of cryptos and crypto mining on the environment.

Bitcoin (BTC) Price Action

In response to FED Chair Powell’s comments, Bitcoin rallied by 2.35% in the following hour, reversing a 1.11% fall to a day low $41,279. It’s worth noting that Bitcoin slid by 2.7% in response to the FOMC meeting minutes last week.

On Tuesday, Bitcoin ended the day up by 2.18% to $42,743. In spite of the gain, Bitcoin was still down by 7.48% year-to-date.

Elsewhere, Binance Coin (BNB) rallied by 9.11%, with Ethereum (ETH) and Litecoin (LTC) ending the day with gains of 5.10% and 4.07% respectively.

For the Day Ahead

The focus now shifts to U.S inflation figures for December. While FED Chair Powell’s comments were market friendly, another spike in U.S inflation could force the FED into a more aggressive path towards normalization. This would be crypto market negative.

For Bitcoin, another fall to sub-$40,000 levels would test support once more. Another pickup in inflationary pressure would likely see a Bitcoin pullback through Monday’s low $39,668 before buying opportunities present themselves. A move through to $43,000 levels, however, would bring $45,000 levels into play and support a shift in market sentiment.

At the time of writing, Bitcoin (BTC) was up by 0.34% to $42,887.