Bitcoin (BTC) smashed through the $107,000 mark to hit a new all time high earlier today. The euphoric climb was short-lived, however, as investors braced for a hawkish rate cut from the U.S. Federal Reserve, potentially dampening market enthusiasm for risk-on assets like crypto.
The Fed is widely expected to lower its benchmark interest rate by 25 basis points, bringing it to a range of 4.25%-4.5%, marking a cumulative 100 bps cut since September.Ā
While this sounds bullish, the devil is in the messaging. The central bankās forward guidanceāset to be unveiled in its latest ādot plotā of rate projectionsāmay signal fewer cuts next year, tempering expectations for an aggressive easing cycle.
Translation: The Fed isnāt ready to slam the monetary gas pedal just yet, and traders know it.
If Wednesdayās projections suggest a slowdown in rate cuts, expect Treasury yields and the U.S. dollar to extend their rally. For Bitcoin and other risk assets, this could mean short-term headwinds as higher yields create an alternative to speculative bets.
The Fedās Playbook
The Fed will reveal its decision on Dec. 18 at 2:00 p.m. ET, followed by a press conference with Chair Jerome Powell. All eyes will be on the following:
The Dot Plot: Projections for interest rates through 2026. Septemberās plot pointed to 2.5 percentage points of cuts, pushing rates below 3%.
Economic Forecasts: Will the Fed admit the economy is stronger than expected?
Powellās Tone: A hawkish lean or dovish reassurance?
A pullback in expected cuts would mark a pivot, especially as the Fed has spent months hinting at patience amid inflationās uneven path.
But Bitcoinās Macro Tailwinds Are Intact
Despite short-term jitters, BTC remains bolstered by a few key forces:
Seasonality: December has historically been kind to Bitcoin, with strong end-of-year rallies a recurring pattern.
Regulatory Hopes: President-elect Trumpās pro-crypto sentiment continues to buoy investor confidence, hinting at a less hostile regulatory landscape.
Global Liquidity Trends: While the Fed plays cautious, Chinaās looming monetary easing will likely inject fresh liquidity into global markets, adding fuel to Bitcoinās bull case.
š¶A Big Week for Inflation Data
Beyond the Fed, markets will also watch Fridayās core Personal Consumption Expenditures (PCE) reportāthe Fedās preferred inflation gauge. If inflation readings cool, it could reinforce bets on gradual easing next year. If they heat up? Well, buckle upāhawkish winds may blow harder.
For now, Bitcoinās blistering rally signals investorsā appetite for the crypto king remains strong. The question isnāt if BTC will reclaim its highs, but whether a cautious Fed can delay the inevitable.
