The meeting of the Federal Open Market Committee on February 1 was perhaps the most anticipated event on the investment landscape. This includes the cryptocurrency market, hence the high expectations, especially among bitcoin investors and enthusiasts.
The bigger question today was whether and how much the Fed will continue to raise interest rates. Fed Chairman Jerome Powell revealed during the FOMC meeting that the federal funds rate will rise by 25 basis points. This was within the expectations of investors and contributed to the most bullish outlook for Bitcoin so far.
The impact of the FOMC findings on Bitcoin and the broader crypto market
Satoshi Nakamoto’s vision may be to create a new financial system that can be separated from the traditional financial system. Fast forward to the present and it is clear that there is a huge connection between the crypto market and traditional finance. This mostly relates to how investors react to economic changes.
This is the second time in a row that the Fed has raised interest rates by 25 basis points. Bitcoin reacted positively to the news with a slight rally hours after the new rate hike was announced.
It even managed to rise briefly above the $24,000 price level, and the total cryptocurrency market cap is up 4.5% at the time of writing.
The bullish result confirms that investors are optimistic about the Fed’s decision. This is mainly because maintaining the rate confirms that QE puts the Fed on the right track towards a return to normal in the economy.
This outcome may also lead to more bullish expectations for February just as we saw in January. However, this will depend on whether there will be significant demand to keep prices high.
So far, the past few hours since the FOMC meeting have sparked a rebound in demand. The number of daily active addresses has increased significantly, which confirms the influx of buyers into the retail sector. The MVRV of BTC has increased consecutively over the past three days, confirming the strong demand during this period.
Source: feeling
The danger is not over yet
The Fed aims to stockpile QE in June. This means it has a tight deadline for reaching its target rate of 2%. So you may have to raise interest rates higher within the next three months if there is a risk of missing the target.
Powell indicated during the FOMC meeting that the Fed will continue to shrink its balance sheet. So there may be a limited situation on the table in the coming months.
Raising the interest rate back above the current level could push the cryptocurrency market into a tight corner. This could translate into another bearish scenario that could push Bitcoin below $20,000.
This is why the upcoming FOMC meeting in March will carry more weight in terms of market impact. Powell emphasized that the Fed is ready to raise interest rates if necessary.
There is also the possibility that risks of a potential interest rate hike in March could affect investor sentiment this month. Perhaps the market notes can already point to such an outcome.
For example, the amount of bitcoin exchange inflows in the last 24 hours has been much higher than the outflows.
Source: Glassnode
Higher exchange inflows could indicate that more investors are moving their bitcoins to exchanges and possibly preparing to sell. If this happens, February may not be as bullish as January.
Is bitcoin still the right horse for the 2023 rally?
There is no doubt that altcoins tend to follow in the footsteps of Bitcoin. However, a more open approach may benefit those looking for better opportunities.
This is already evident in some of the assets of the last days. For example, the price of bitcoin is up about 6.77% over the past three days. Meanwhile, Cardano’s ADA jumped 11% in the same time frame, outperforming BTC.
Source: TradingView
How much is 1,10,100 BTC worth today
There is also the fact that ADA still has more room to cover than BTC before reaching its previous ATH. However, a multifaceted approach would be beneficial as there is still a lot of uncertainty ahead.
conclusion
Based on Powell’s remarks, the Fed could swing off the current trend if needed. This means that there is still a significant risk that R&D will return to the market in the next two to three months.
However, the Fed’s fight against inflation is going well, so the long-term outlook remains in favor of Bitcoin and the overall market recovery.