The Federal Reserve’s Impact on Bitcoin Price: A Game of Influence
The recent policy update by the Federal Reserve has once again brought attention to its hold on the price of Bitcoin. Despite the meeting’s outcome, which indicated a pause on rate hikes but the possibility of higher rates for a longer duration, Bitcoin’s price action remained relatively unchanged throughout the week. Currently, it finds itself at the lower end of the tight range it has been trapped in for months, fluctuating between $25,000 and $30,000.
Unlike previous occasions when oversold conditions led to notable rallies in March and June, Bitcoin has been trading sideways following its most recent significant drop. According to Rob Ginsberg, an analyst at Wolfe Research, the current move in rates seems to be affecting long-duration speculative assets, with Bitcoin included in that category. He explains that oversold conditions typically signal a rebound, so it is concerning when prices fail to respond.
Bitcoin has experienced difficulties in recovering from its drop on August 17th. Ginsberg suggests that if rates break out to new highs, it wouldn’t be surprising for Bitcoin to breach the $25,000 support level, resulting in a break in the system. This scenario would then prompt the Federal Reserve to pivot, leading to a violent rotation back into risk for investors.
Last year’s crypto winter distinguished itself from previous periods by the significant influence of the Federal Reserve’s inflation-fighting rate hiking campaign on Bitcoin’s price action. Although Bitcoin has seen a 60% increase in 2023, the anticipated positive catalysts of regulation and the introduction of Bitcoin exchange-traded funds have failed to propel prices higher. As a result, investors have adopted a more apathetic stance, waiting for the next moves from the Federal Reserve.
Ginsberg states that if Bitcoin manages to surpass the $28,000 mark, it may continue to climb as high as $32,000 in the short term. However, he believes that this scenario is unlikely, considering the recent deterioration of the market would have to be a mere head fake. In the event that Bitcoin breaks below the $25,000 support level, Ginsberg predicts a further decline to a range between $20,000 and $21,000. He identifies the increasing real rates, which are reaching cycle highs, as the biggest obstacle for speculation and cryptocurrency in particular. According to him, a decrease in breakeven and a lower working rate are necessary to entice investors back into this aspect of the market.
Overall, the influence of the Federal Reserve on Bitcoin’s price remains a crucial factor to consider. As the central bank’s policies evolve and rates fluctuate, the cryptocurrency market will likely continue to experience volatility, making it necessary for investors to closely monitor the actions and statements of the Federal Reserve.