Bitcoin price stumbles after Fed dashes hopes for rate cuts in March

The price of Bitcoin dipped 2.5% after the Fed pressed pause on interest rates and dampened any hope of rate cuts next month.

Bitcoin (BTC) stumbled on Wednesday after the United States Federal Reserve decided to leave interest rates unchanged, hosing down hopes for a potential rate cut in March.

During the Federal Open Markets Committee press conference on Jan. 31, the Fed Reserve Board said interest rates would stay at 5.25%-5.50%, adding that it would need “greater confidence” that inflation pressures had been dealt with before cutting rates.

The price of Bitcoin fell a little over 2.2% following the FOMC announcement and is currently changing hands for $42,590 — though it is still up 7% for the week, per TradingView data.

IG Markets analyst Tony Sycamore told Cointelegraph that the Fed’s hawkish sentiment could spell trouble for U.S. equites and risk assets such as Bitcoin. 

“Unless earnings reports tomorrow from Apple, Amazon, and Meta shoot the lights out, expect to see a further pullback in US equities in coming sessions, which will weigh on other risk assets including Bitcoin,” Sycamore said. 

“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the Fed Reserve Board wrote in a statement.

The Fed added that recent indicators pointed to “solid” economic expansion, listing continued growth in jobs and a reduction in the unemployment rate as evidence of strength.

However, the Fed reiterated its hawkishness, saying that while inflation had eased over the past year, it remains at a level where rate cuts are by no means a certainty.

“The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”

Rate cuts are often considered bullish for risk assets such as cryptocurrencies and tech stocks.

When the Federal Reserve cuts rates, it makes it cheaper to borrow capital, which increases overall spending activity and risk-on behavior in the economy.

Related: Bitcoin might drop to $30,000, but that’s OK

Sycamore added that Bitcoin would most likely continue to trade lower due to a deterioration in risk sentiment brought about by the Fed’s hawkishness.

“This morning’s FOMC meeting led to disappointment from those banking on a Fed rate cut in March and compounds risk aversion flows stemming from yesterday’s earnings report misses from Microsoft, Alphabet, and AMD,” said Sycamore. 

Sycamore added that investors could expect a rally toward around $45,000 before returning to the mid-$30,000 region. After this, Sycamore said that he expects Bitcoin’s general uptrend to resume. 

Big Questions: How can Bitcoin payments stage a comeback?