Bitcoin’s Fate Hangs on Fed’s Interest Rate Decision: More Pain Ahead?

• Federal Reserve officials, led by Chairman Jerome Powell, have cautioned for a careful consideration of rate cuts amid high inflation and jobs data.
• Despite growing institutional interest in Bitcoin, uncertainties surrounding interest rates impact its price, with recent comments from Powell leading to downward pressure.

Federal Reserve officials, led by Chairman Jerome Powell, emphasized on Wednesday, April 3, the necessity for further deliberation before enacting any interest rate reductions. Although there has been speculation among financial analysts about potential rate cuts by June 2024, uncertainty still surrounds this timeline. Consequently, assets perceived as riskier, such as Bitcoin and equities, might undergo prolonged consolidation before witnessing significant upward momentum.

Addressing the Stanford Graduate School of Business, Powell remarked, “Recent data on job gains and inflation have exceeded expectations.” While policymakers generally concur that rates could decrease later in the year, he asserted that this would only occur once they possess “greater confidence that inflation is consistently trending downwards” towards the Fed’s 2% target.

His statements reiterated the language adopted by the Fed, emphasizing the need to balance the risks associated with lowering interest rates prematurely against the risks of dampening economic activity beyond necessity.

Fed Can Delay Rates Cuts Beyond June

However, with the influx of new data, numerous questions have arisen, leaving as much uncertainty as clarity. In separate statements to CNBC on Wednesday, Atlanta Fed President Raphael Bostic suggested that interest rates should probably remain untouched until the fourth quarter of this year.

Bostic foresees only a single quarter-percentage-point reduction being appropriate in 2024, a considerably lower estimate compared to the expectations of three or more cuts from most of his fellow policymakers. He said:

“We’ve seen inflation kind of become much more bumpy. If the economy evolves as I expect, and that’s going to be seeing continued robustness in GDP and employment, and a slow decline in inflation over the course of the year, I think it will be appropriate for us to start moving down at the end of this year, the fourth quarter.”

What Happens to Bitcoin?

Soon after Powell’s comments on Wednesday, Bitcoin came under pressure with the BTC price slipping all the way to $65,500, per the Crypto News Flash report. The cryptocurrency is already down from its all-time high level of $73,500 and high interest rates can put further pressure on risk-ON assets such as Bitcoin and other altcoins.

While Bitcoin is facing some temporary turbulence, the spot Bitcoin ETFs continue to attract inflows amid strong institutional demand, per the Crypto News Flash report. The spot Bitcoin ETF inflows have once again turned net positive as outflows from GBTC slow down.

With institutional interest in Bitcoin on the rise, the futures market suggests potential volatility ahead. As per CryptoQuant’s analysis, the rising Coinbase Premium stands out as a clear indicator of increased Bitcoin acquisitions by US institutions. This premium, which showcases the price difference between Coinbase and global exchanges, highlights significant institutional participation, especially amidst the influx of investments into US Bitcoin ETFs.