Bitcoin stumbled on Jan. 31 after the United States Federal Reserve decided to leave interest rates unchanged and hosed down hopes of a potential rate cut in March, leading one analyst to predict trouble ahead for U.S. stocks and BTC.
During the Federal Open Market Committee (FOMC) press conference on Jan. 31, the Fed said interest rates would stay at 5.25%–5.50%, adding that it would need “greater confidence” that inflation pressures had been dealt with before cutting rates.
IG Markets analyst Tony Sycamore told Cointelegraph that the Fed’s hawkish sentiment could spell trouble for U.S. equities and risk assets such as Bitcoin.
“Unless earnings reports tomorrow from Apple, Amazon, and Meta shoot the lights out, expect to see a further pullback in U.S. equities in coming sessions, which will weigh on other risk assets, including Bitcoin,” Sycamore said.
The price of Bitcoin fell a little over 2.2% following the FOMC announcement and is currently changing hands for $42,590 — though it is still up 7% for the week, according to data from TradingView.
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the Fed wrote in a statement.
The Fed added that recent indicators pointed to “solid” economic expansion, listing continued growth in jobs and a reduction in the unemployment rate as evidence of strength.
However, the Fed reiterated its hawkishness, saying that while inflation had eased over the past year, it remains at a level where rate cuts are by no means a certainty.
“The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.” Rate cuts are often considered bullish for risk assets such as cryptocurrencies and tech stocks.
When the Federal Reserve cuts rates, it makes it cheaper to borrow capital, which increases overall spending activity and risk-on behavior in the economy.
Sycamore added that Bitcoin would most likely continue to trade lower due to a deterioration in risk sentiment brought about by the Fed’s hawkishness.
“This morning’s FOMC meeting led to disappointment from those banking on a Fed rate cut in March and compounds risk aversion flows stemming from yesterday’s earnings report misses from Microsoft, Alphabet, and AMD,” said Sycamore.
Sycamore added that investors could expect a rally toward around $45,000 before returning to the mid-$30,000 region. After this, Sycamore said that he expects Bitcoin’s general uptrend to resume.
Source : Cointelegraph / Feb 1, 2024