The decision by the United States Federal Reserve to keep interest rates steady and the diminishing hopes for a possible rate cut in March led to selling pressure on Bitcoin on the night of January 31, prompting an analyst to predict future troubles for US stocks and Bitcoin.
Fed’s Interest Rate Decision Causes Selling Pressure
In the press conference held by the Federal Open Market Committee on January 31, the Federal Reserve Board announced that interest rates would remain at the level of 5.25-5.50% and added that more confidence was needed that inflation pressures had been overcome before reducing interest rates. IG Markets analyst Tony Sycamore commented on the issue, saying that the Fed’s hawkish stance could create problems for risky assets such as US stocks and Bitcoin:
“Unless tomorrow’s earnings reports from Apple, Amazon, and Meta do not turn off the lights, we expect to see further pullbacks in US stocks in the coming sessions, which will weigh on other risk assets including Bitcoin.”
The Federal Reserve Board stated in its announcement:
“The Committee does not think it is appropriate to lower the target range until it gains more confidence that inflation is sustainably moving towards 2%.”
The Fed added that recent indicators pointed to a robust economic expansion, citing ongoing growth in employment and a decrease in the unemployment rate as evidence of strength. However, the Fed reiterated its hawkish stance, stating that despite inflation decreasing over the past year, interest rate cuts were by no means certain:
“The economic outlook is uncertain, and the Committee continues to be extremely cautious against inflation risks.”
Interest Rate Decision and the Crypto Sector
Interest rate cuts are generally considered bullish for risky assets such as cryptocurrencies and technology stocks. When the Federal Reserve lowers interest rates, it makes borrowing capital cheaper, which in turn increases overall spending activity and risk behavior in the economy. Sycamore added that due to the deterioration in risk sentiment brought on by the Fed’s hawkishness, Bitcoin is likely to continue trading lower:
“This morning’s FOMC meeting led to disappointment for those who were pinning their hopes on a Fed rate cut in March, combining with the flow of risk aversion stemming from missed earnings reports from Microsoft, Alphabet, and AMD yesterday.”
Sycamore also added that investors might expect a rally towards around $45,000 before a return to the mid-$30,000s. After that, Sycamore said he expected Bitcoin’s overall upward trend to continue.
