Bitcoin experienced a downturn on January 31, following the Federal Reserve’s decision to maintain interest rates and dampen expectations of a potential rate cut in March. This decision has implications not only for U.S. stocks but also for Bitcoin and other risk assets.
During the Federal Open Market Committee (FOMC) press conference, the Fed announced that interest rates would remain between 5.25% and 5.50%. The Fed emphasized the need for greater confidence in dealing with inflation pressures before considering a rate cut. This stance is seen as hawkish, indicating a focus on controlling inflation even at the risk of slower economic growth.
Tony Sycamore, an analyst at IG Markets, expressed concerns that the Fed’s hawkish sentiment could negatively impact U.S. equities and risk assets like Bitcoin. He suggested that unless upcoming earnings reports from major companies like Apple, Amazon, and Meta are exceptionally positive, a further pullback in U.S. equities is likely, which could also affect Bitcoin.
Following the FOMC announcement, Bitcoin’s price dropped by over 2.2%, trading around $42,590, though it still showed a 7% increase over the week. The Fed’s statement highlighted that while inflation has eased, it remains at a level that does not warrant immediate rate cuts. The Fed also noted signs of solid economic expansion, such as job growth and a decrease in unemployment.
Rate cuts are generally seen as bullish for risk assets like cryptocurrencies and tech stocks, as they reduce the cost of borrowing and stimulate spending and risk-taking in the economy. However, the Fed’s current stance suggests a cautious approach, prioritizing inflation control over economic stimulation.
Sycamore predicts that Bitcoin is likely to continue trading lower due to deteriorating risk sentiment caused by the Fed’s hawkishness. He noted that the recent FOMC meeting, combined with disappointing earnings reports from major tech companies, has increased risk aversion. However, he anticipates a potential rally in Bitcoin’s price towards $45,000 before it settles back into the mid-$30,000 range, followed by a resumption of its general uptrend.
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