Crypto Market Reacts as Federal Reserve’s Hawkish Stance Dampens Bitcoin and Equities
Crypto News – On January 31, the price of Bitcoin took a 2.5% tumble following the United States Federal Reserve‘s decision to keep interest rates unchanged. The Fed’s stance also extinguished any expectations of a potential rate cut in March, which had a ripple effect on both U.S. stocks and Bitcoin, with one analyst forecasting challenges ahead.
During the Federal Open Market Committee (FOMC) press conference on January 31, the Fed declared its intention to maintain interest rates within the range of 5.25% to 5.50%. They emphasized the need for ‘greater confidence’ in addressing inflation pressures before considering rate reductions.
Tony Sycamore, an analyst at IG Markets, expressed concerns to Cointelegraph, suggesting that the Fed’s hawkish stance could spell trouble for U.S. equities and risk assets like Bitcoin. He stated, ‘Unless earnings reports from tech giants Apple, Amazon, and Meta exceed expectations, we should anticipate further declines in U.S. equities in the upcoming sessions, which will also put pressure on other risk assets, including Bitcoin.’
Following the FOMC announcement, the price of Bitcoin experienced a modest decrease of approximately 2.2%, currently trading at $42,590. Despite this dip, it remains 7% higher for the week, according to data from TradingView.
In a statement, the Fed indicated that they do not anticipate reducing the target interest rate range until they are more confident about inflation moving steadily towards their 2% target. The Fed highlighted positive economic indicators, such as sustained job growth and a decrease in the unemployment rate, as evidence of economic strength.
However, the Fed reiterated its hawkish stance, emphasizing that while inflation has eased somewhat over the past year, it remains at a level where rate cuts are not guaranteed. Traditionally, rate cuts are viewed favorably for risk assets like cryptocurrencies and tech stocks, as they make borrowing cheaper and stimulate spending and risk-taking in the economy.
Sycamore believes that Bitcoin may continue to experience downward pressure due to the growing risk aversion resulting from the Fed’s hawkish stance. He explained, ‘This morning’s FOMC meeting disappointed those who were hoping for a Fed rate cut in March, and it compounds the risk aversion stemming from yesterday’s disappointing earnings reports from Microsoft, Alphabet, and AMD.’
Sycamore suggested that investors might witness a brief rally towards the $45,000 mark before a return to the mid-$30,000 range. Following this, he anticipates a resumption of Bitcoin’s overall upward trend.