How the Fed anticipates bitcoin hikes

There is not much new on the cryptocurrency market. Bitcoin (BTC) remains near the $43,000 mark and is in a noticeable consolidation phase after experiencing the worst moments of the correction following the approval of spot ETFs. With the market still undecided on further changes to the cryptocurrency's ruling trend, some experts have noted that the key to predicting BTC's next move may lie with the Federal Reserve (Fed).

Recent statements from Jerome Powell, the U.S. central bank chairman, couldn't be clearer: the Fed is still thinking about lowering interest rates, but not as soon as the market expects. "We just want a little more certainty before we take that very important step of starting to lower interest rates," he said in an interview with CBS television on Monday.

"With the economy so strong, we think we can be cautious about when to start lowering interest rates. We just want to see more evidence that inflation is moving steadily down to 2 percent," Powell said, acknowledging that the work is not yet done, although FOMC confidence is gradually increasing.

On Tuesday, CME's FedWatch tool showed the probability of another March pause rose nearly 30% from last week to 83.5%; a month ago, the consensus was 64% in favor of the Fed cutting rates in March and only 31.9% in favor of holding rates.

Looking ahead to May, the consensus still favors a 25 basis point rate cut (53.8%), although the probability of a third consecutive pause in 2024 rose over the week to 37%. They also expect 115 basis points of rate cuts this year, down from 150 basis points of easing in early January.

Rania Goulet, market analyst at XS.com, believes that selling pressure on BTC may ease following Powell's remarks as general economic factors support the growth of the world's largest cryptocurrency. At the same time, technical factors supporting the cryptocurrency's downward movement have started to weaken in the short to medium term.

"Powell said the U.S. is on an "unsustainable path" and that debt will outpace economic growth. He believes investors will soon begin to doubt the government's ability to pay its debts, leading to a move away from the U.S. dollar in favor of other hedging instruments. "I think the prevailing tactic in the cryptocurrency market is to buy on dips," Goulet notes.

The expert points out that recent selling attempts have been met with a surge of buying, thanks to which the cryptocurrency is holding near the $43,000 mark. Earlier in the week, there was a selling attempt as prices fell amid weakness in Chinese markets. However, prices quickly bounced off the lows twice to $42,200, indicating strong support that has significantly dampened the bearish momentum, quickly bringing the price back into the $43,000 range, the average rate since early December. The 50-day moving average is nearby, suggesting the market is still undecided on the currency's primary direction.

"This comes at a time when the dollar index and equities have risen simultaneously, coinciding with a decline in risk appetite in the markets. I believe the unique drivers of the cryptocurrency market, such as bitcoin exchange-traded funds (ETFs), have played a key role in the price movement, keeping investors waiting for clear signals on the direction of price movement," adds Goulet.

This strong performance following Powell's remarks contrasts with the performance of digital assets. Simon Peters, crypto asset analyst at eToro, notes that crypto asset prices have seen significant gains during times of loose monetary policy, so any signs of further declines in inflation along with weaker employment data could be the perfect combination for a potential rise in crypto asset prices.

Marcus Thielen, research director at 10x Research and Matrixport, believes that the cryptocurrency market's exclusive drivers, such as BTC ETFs, have already been exhausted and investors are waiting for the next meaningful signal. However, this expert believes that with catalysts such as the future "halving" of the bitcoin network, the reigning cryptocurrency could hit the $70,000 mark this year. Thielen was one of the analysts who best predicted bitcoin's movement in recent weeks.