Bitcoin's price has fallen below $104,000 ahead of the highly anticipated interest rate decision from the Federal Reserve. Market expectations lean towards a 25 basis point rate cut, which could boost the market in the short term. However, traders remain cautious due to uncertainty surrounding the Fed's long-term monetary policy.
Bitcoin Slides Ahead of Fed Decision
In the hours leading up to the Fed's announcement, Bitcoin (BTC) experienced a significant sell-off, dropping below $104,000. Mark Cabana of Bank of America speculates that concerns about prolonged restrictive monetary policy may prompt the Fed to announce a 25 basis point rate cut. While the U.S. labor market shows signs of cooling, inflation remains a concern, with the Consumer Price Index (CPI) rising from 2.4% in September to 2.8% in November.
The market has priced in the anticipated rate cut, but analysts are closely watching comments from Federal Reserve Chairman Jerome Powell regarding the 2025 outlook. Experts believe the Fed may reduce its forecast of four rate cuts down to three, signaling a tougher stance to bring inflation closer to the 2% target. Kurt S. Altrichter of Ivory Hill Wealth notes:
"Tomorrow's Fed meeting is not just about the anticipated interest rate cut, but also about how committed the Fed will be to its interest rate reduction plans for 2025. More cuts mean better conditions for stocks and bonds. Fewer cuts indicate that the market will need to adjust its expectations."
Selling Pressure Signal Data
On-chain data shows that short-term BTC holders chose to take profits in the most recent meeting, with traders holding Bitcoin for 90 to 365 days benefiting from prices above $100,000. Meanwhile, long-term holders, operating in the range of $90,000 to $100,000, have reduced activity as prices exceeded $100,000.
Historical trends suggest a potential pullback this week. Renowned cryptocurrency analyst Rekt Capital emphasizes that similar price discovery cycles often lead to corrections. For example:
In 2013, Bitcoin faced a pullback in the 7th week since its price discovery.
In 2017, BTC dropped 34% in the 8th week.
In 2021, Bitcoin corrected 16% in the 6th week.
If history repeats itself, Bitcoin could return to levels below $100,000. Rekt Capital emphasizes that such corrections are a natural part of the Bitcoin price cycle, often erasing weeks of gains in just a few days.
Arthur Hayes Predicts Market Chaos
Adding to the uncertainty, BitMEX co-founder Arthur Hayes predicts the market will be significantly volatile around January 20, coinciding with Donald Trump's inauguration day. Hayes expects a major market correction due to broader geopolitical and financial disruptions. He notes that the Maelstrom investment fund plans to adjust its positions ahead of the anticipated chaos.
What Will Bitcoin Do Next?
The market's focus remains on the Fed's decision and Powell's guidance. Investors should prepare for the possibility of short-term volatility, monitoring key levels around $100,000. Whether Bitcoin rebounds or continues to decline depends on how the Fed's monetary policy aligns with the market's general expectations.
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