Bitcoin and other cryptocurrencies experienced a decline on Wednesday, although they managed to hold relatively steady following a recent selloff. This downward trend comes after prices reached a 20-month high. Traders are now attentively awaiting a crucial policy decision from the Federal Reserve while monitoring key technical levels.
Over the past 24 hours, the price of Bitcoin has dropped by 1% to $41,200, stepping back from its recent peak of over $44,000. This peak was significant as it marked the token’s highest level since April 2022—prior to the brutal and extended bear market that cryptocurrencies endured. Despite this correction, the largest digital asset has still achieved an impressive surge of over 50% in under two months. This surge has brought an end to a period of subdued trading and sparked claims that a new bull market is underway.
Ruslan Lienkha, Chief of Markets at fintech platform YouHodler, believes that the recent correction in Bitcoin’s price is primarily driven by short-term investors and traders taking profits after an impressive rally. He emphasizes that there is no indication of a widespread reduction in market exposure, as crypto traders are still embracing elevated risk. Consequently, Lienkha suggests that we may experience even higher volatility in the near future.
The anticipation of U.S. regulators approving the first spot Bitcoin exchange-traded fund (ETF) has been a contributing factor to the positive performance of digital assets. The approval of such an ETF is expected to generate a fresh wave of investor interest in cryptocurrencies. Additionally, the macroeconomic landscape has played a role in these gains, with signs of decreasing inflation and slowing growth prompting traders to reassess their expectations for interest rates. As a result, many now anticipate multiple cuts to borrowing costs by the Fed next year, possibly as early as March.
Impact of Lower Rates on Bitcoin and the Market
Lower rates tend to boost demand for risk-sensitive assets—like tokens and stocks—which primes Bitcoin to react with the Dow Jones Industrial Average and S&P 500 on Wednesday as investors ready for the latest Fed decision. While markets expect the central bank to hold rates steady, the press conference from Fed Chairman Jerome Powell at 2:30 p.m. Eastern time will be scrutinized for signs of when rate cuts could come.
According to analysts at crypto exchange Bitfinex, the anticipation of the Fed’s decision is just one of several factors impacting Bitcoin price movement. They note that market technical factors, such as historically tight token supply and the prospect of profit-taking, are also being closely monitored.
Specifically, the analysts point out that $44,000 and above should be pivotal for Bitcoin. This is because mid-term holders, who have held Bitcoin for a period of 2-3 years, have their realized price at that level. The cohort of mid-term holders controls over 16 percent of the active supply, making their influence significant. When the price surpasses $44,000, this influential block of holders will be in the green, which could potentially prompt further selling.
In addition to Bitcoin, other cryptocurrencies are feeling the impact. Ether, the second-largest crypto, fell 2% to $2,180. Smaller tokens or altcoins, like Cardano and Polygon, also experienced losses, with Cardano down 4% and Polygon slipping 2%. Even memecoins like Dogecoin and Shiba Inu were in the dumps, with Dogecoin dropping 5% and Shiba Inu shedding 3%.
Overall, the market is closely watching the Fed’s decision and the potential impact it may have on Bitcoin and other cryptocurrencies. Investors are considering a range of factors, from lower rates to market technicals, in order to navigate the ever-evolving landscape of the crypto market.
