Federal Reserve Leaves Interest Rates Unchanged
The Federal Reserve (Fed) announced on Wednesday that it will not be making any changes to benchmark interest rates in the US, which will remain at 5.25-5.5%. Following the announcement, Bitcoin experienced a slight drop of just over 1% and was trading around $27,000, still relatively close to its monthly highs. Fed Chairman Jerome Powell mentioned in his remarks that there is still a possibility of another interest rate hike later this year, leading analysts to refer to this announcement as a “hawkish pause.”
Fed Policymakers Predict Another Rate Hike
According to the Fed’s updated dot-plot, 12 out of 19 policymakers predict a 25-basis point interest rate hike sometime this year. The dot-plot also revealed that policymakers expect only two rate cuts in 2024, down from the previous projection of four. Additionally, there has been an increase in growth expectations for the US economy, with a projected growth rate of 2.1%. This reflects the central bank’s confidence in achieving a “soft landing” for the economy by controlling inflation through interest rate hikes without causing a recession.
Market Reaction and Bitcoin
The market did not appear to be significantly surprised by the updated dot plot and economic projections. Macro investors have already been factoring in the likelihood of higher interest rates for an extended period of time. The US Dollar Index (DXY) remained above 105, close to six-month highs, while the US 2-year government bond yield stayed above 5.1%, near its highest level in 22 years.
In terms of Bitcoin, the Fed’s policy decision had little impact on market sentiment. Unlike last year when the Fed’s tightening cycle influenced a bear market for Bitcoin, macro themes have had less effect on the cryptocurrency this year. The progress made in bringing US inflation back to the Fed’s target level has created a sense of calm in the crypto space. Bitcoin appears comfortable with the idea of another interest rate hike this year, as there are expectations for a new cutting cycle in 2024, albeit less aggressive.
Bitcoin Price Momentum and Risks
Bitcoin traders are now assessing whether the cryptocurrency can gain enough momentum to break out of its current range of $25,000 to $28,500. The price risks for Bitcoin are tilted to the upside. However, there are potential tail risks such as a surge in inflation leading to additional interest rate hikes or a collapse of a major crypto exchange like Binance, which would have significant consequences due to its dominant market position.
Despite these risks, Bitcoin remains a safe haven asset and is not at risk of being labeled as a security by the US Securities and Exchange Commission (SEC). Additionally, the approval of spot ETFs in the US expected in the coming quarters could further drive up Bitcoin prices. A break above $28,500 could serve as a catalyst for a steady rise towards the highs seen in 2023, with investors also anticipating next year’s Bitcoin halving as another bullish factor.
Hot Take: Bitcoin Resilient Amidst Fed Announcement
Despite the Federal Reserve’s decision to leave interest rates unchanged, Bitcoin remained relatively resilient. The cryptocurrency market was largely unfazed by the Fed’s updated projections and dot plot. This suggests that investors have already priced in the possibility of higher interest rates and have confidence in Bitcoin’s ability to navigate through macroeconomic changes. With expectations for a new cutting cycle in 2024 and potential spot ETF approvals on the horizon, Bitcoin’s price risks appear tilted to the upside. While there are potential tail risks that could lead to a decline in prices, overall sentiment remains positive as Bitcoin continues to establish itself as a safe haven asset.
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