Bitcoin’s Price Movement in Response to the Federal Reserve’s Interest Rate Decision

Bitcoin (BTC) experienced a minor fluctuation in price following the interest rate decision made by the US central bank. However, it was not as volatile as expected, indicating that bitcoin was unable to break out of its current range. Prior to the announcement, bitcoin steadily rose and found support around $29,300. After the announcement, the price fluctuated between $29,250 and $29,750. Eventually, bitcoin regained stability at $29,300 and continued its gradual upward movement. At the time of writing, the BTC price stands at $29,460 on Binance and €26,465 on Bitvavo, representing a 0.8% increase for the day. The total market capitalization is $572 billion, with bitcoin’s dominance at 48.2%. The Fear & Greed Index is currently at 51 (Neutral).

Federal Open Market Committee’s Impact on Bitcoin

Yesterday, the Federal Reserve announced a 0.25% increase in interest rates. The market had anticipated that this announcement by the Federal Open Market Committee (FOMC) would trigger a breakout for bitcoin. Typically, after a prolonged period of consolidation, a strong price movement follows, and the FOMC appeared to be the catalyst for this. However, since 99% of the market had already factored in this rate hike, the announcement came as little surprise. Additionally, there continues to be a significant lack of liquidity in the market. The speech by Fed Chair Jerome Powell also had a lesser impact than expected. While he maintained a somewhat hawkish tone and left the door open for further rate hikes if necessary, he predicted that inflation may not return to 2% until 2025, but he does not expect a recession.

Speculation on Future Rate Hikes

The market is currently speculating on whether this was the last interest rate hike or if there will be more in the future. According to the CME Fedwatch tool, approximately 80% of the market currently expects a pause in rate hikes in the next meeting, while 20% still anticipate a 0.25% increase. However, the next FOMC meeting is not scheduled until September 19 and 20. It is important to note that a pause does not necessarily imply a rate cut. Historically, an initial rate reduction has often yielded negative effects on stock markets.

Impact on Bitcoin’s Correlation with Stock Markets

Interestingly, the correlation between stock markets, such as the S&P 500, and bitcoin has been decreasing recently. This reduced correlation suggests that the price movements of bitcoin are becoming less influenced by the performance of traditional markets.

Bitcoin Mining Difficulty Adjustment

In addition to the interest rate decision, the bitcoin mining difficulty, which represents the level of effort required to mine new bitcoins, was recently adjusted. The mining difficulty decreased by 2.94% to a level of 52.33 T. As a result, the hash price increased slightly, relieving some of the pressure on miners.

Short-Term Holders vs. Long-Term Holders

The recent rejection of bitcoin at $31,000 and subsequent drop below $30,000 can be attributed to smaller retail investors selling their BTC holdings. However, the reason bitcoin did not experience a more significant decline is because long-term holders continue to firmly hold onto their bitcoin. In fact, the amount of BTC held by long-term holders is at an all-time high across all term groups.

Analysts Warn of Potential Rejection

Despite the resilience of bitcoin and its current consolidation phase, analysts warn that we should not be surprised if bitcoin faces another rejection. The $29,500 level has been identified as a crucial level to monitor closely. Therefore, it is important for investors to remain cautious and attentive to potential price movements.