The cryptocurrency market held its breath as Bitcoin, the world’s largest digital asset, soared past $106,000 to reach a new all-time high in early Asian trading hours on Monday. However, the euphoria was short-lived as BTC quickly retreated to around $104,500, with traders nervously eyeing the upcoming U.S. Federal Reserve rate decision.
Fed Decision Looms Large
Market participants are keenly awaiting the Fed’s policy meeting on Dec. 18, where the central bank is widely expected to cut interest rates by 25 basis points, bringing the benchmark borrowing cost down to the 4.25% to 4.5% range. This would mark a cumulative easing of 100 basis points since September.
However, there are growing concerns that the Fed may deliver what analysts are calling a “hawkish rate cut” – reducing rates as expected but signaling a slower pace of easing in 2025 than previously projected. According to a source familiar with Fed deliberations, the central bank’s dot plot of interest rate forecasts could be revised lower, reflecting a more gradual easing path.
We suggest the risk of a ‘hawkish’ cut with less rate hikes next year than anticipated in September in the Summary of Economic Projections (dot plot), recognition that economy is stronger than it had expected previously, and inflation is on a bumpy path that allows the Fed to be patient.
Marc Chandler, Chief Market Strategist at Bannockburn Global Forex
If the Fed does take a more hawkish stance, it could strengthen the U.S. dollar and push up Treasury yields, potentially creating headwinds for risk assets like Bitcoin. However, some analysts believe that any Fed-induced pullback in BTC may be short-lived given the strong bullish sentiment and positive regulatory signals coming out of Washington.
Seasonality and Regulatory Tailwinds
Bitcoin has historically performed well in the fourth quarter, and this year appears to be no exception. The cryptocurrency has rallied nearly 20% since the start of October, outperforming traditional assets like gold and the S&P 500.
Adding to the bullish momentum are growing signs that the incoming Biden administration will take a more crypto-friendly approach to regulation. President-elect Biden has reportedly tapped former CFTC chairman Gary Gensler, who is known for his deep understanding of blockchain technology, to lead the financial policy transition team.
Whilst lots of ink will be spilled on the pace of cuts going forward, little detracts from the supportive macro dynamic of a global central bank rate cutting cycle and rising global liquidity, set to be propelled by China.
Founders of LondonCryptoClub
Indeed, many analysts believe that accommodative monetary policy from major central banks, coupled with the digitization of the global economy in the wake of COVID-19, has set the stage for a prolonged crypto bull market. With institutions increasingly embracing Bitcoin as a hedge against inflation and a potential portfolio diversifier, the long-term outlook for the digital asset remains bright.
Key Levels to Watch
As Bitcoin consolidates below its recent highs, traders are eyeing key technical levels for clues about the cryptocurrency’s next move. Some important areas to keep an eye on include:
- $110,000: A break above this psychological round number could supercharge bullish momentum and open the door for a run towards $120,000.
- $100,000: This level served as resistance during Bitcoin’s previous rally and could now act as support. A sustained drop below $100,000 would be a bearish sign.
- $90,000: The 50-day moving average currently sits just below this level, making it a key support area to watch on any significant dips.
Ultimately, while short-term volatility is likely given the looming Fed decision, the fundamental and technical outlook for Bitcoin remains constructive. With institutional adoption accelerating and retail interest on the rise, many believe that the cryptocurrency is just getting started on its journey to becoming a mainstream asset class and a widely accepted store of value.
Only time will tell if Bitcoin can live up to the hype and deliver on its promise of financial sovereignty and censorship resistance. But one thing is certain: the world will be watching closely as the pioneer cryptocurrency embarks on its next chapter.
