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Bitcoin prices experienced a sharp drop on Wednesday, briefly falling below the $100,000 milestone, as cautious expectations for the US Federal Reserve's interest rate cuts dampened crypto investment.
At one point during Wednesday's trading session, the leading cryptocurrency on the market fell as low as $98,760, but has since recovered to six-digit levels. Other cryptocurrencies such as Ethereum (ETH) and Dogecoin (DOGE) also faced significant declines.
Fed's cautious interest rate cuts cause market uncertainty
The Fed's decision to lower borrowing costs for the third time in a row softens the outlook for future cuts, particularly into 2025. Chairman Jerome Powell stressed that further progress on inflation was needed before the central bank would consider further monetary easing.
IG Australia market analyst Tony Sycamore said the Fed's decision was largely expected given recent trends in US inflation and economic activity.
But Sycamore said it acted as a catalyst to unwind some of the “speculative excess” that flowed into risk assets such as stocks and Bitcoin, especially after the recent U.S. election.
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Despite this drop, Bitcoin prices have continued to rise about 50% since the November 5 US election, largely due to President-elect Donald Trump floating the idea of establishing a national stockpile of Bitcoin. This is because the company has committed to deregulating the cryptocurrency sector, further boosting market sentiment. .
Paul Veraditaquit, managing partner at Pantera Capital, said that despite some traders taking profits after the Fed meeting, “all signs point to a bottom and a positive outlook for Bitcoin. '', he said, expressing optimism about the future of Bitcoin prices.
Market dynamics changed after the Fed meeting, with Sean McNulty, trading director at liquidity provider Alberos Markets, reporting that there is an increased demand for options to hedge against a potential Bitcoin decline.
Zann Kwan, chief investment officer at Revo Digital Family Office, suggested that Bitcoin could temporarily retreat to the low $90,000 range.
Bitcoin price eyes key resistance level at $105,400
Cryptocurrency analyst Ali Martinez provided insight on market sentiment, stressing that current market behavior reflects expectations about future conditions rather than past events.
The analyst noted that while a 25 basis point rate cut was widely expected, the Fed's latest outlook for 2025 was not well-received. The Fed was expected to cut interest rates three times in 2025, but now expects only two, raising concerns about persistent inflation.
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Recent inflation data has also been disappointing, with core consumer price index (CPI) numbers at 4% annually and core personal consumption expenditures (PCE) nearing 3.5%. Producer Price Index (PPI) numbers are trending upward as well, suggesting that inflation may continue to be a challenge.
But Martinez emphasized that the real turning point came during Powell's press conference, when he described the decision as a “close call” and suggested that not all Fed officials agreed on the rate cut. did. This caused the USD to soar to levels not seen since 2022, which typically correlates with the decline in BTC.
Martinez also revealed that Bitcoin prices broke out of a head-and-shoulders pattern on Wednesday, resulting in a drop just below $99,000, but the bearish outlook could be negated by the cryptocurrency needing to fall below $105,400. He emphasized the need to exceed this.
The daily chart shows the BTC price movement experienced on Wednesday. Source: BTCUSDT on TradingView.com
At the time of writing, Bitcoin price is $101,180, down 2.2% in the past 24 hours.
Featured image from DALL-E, chart from TradingView.com
