On Wednesday, the Federal Reserve kept interest rates at a range of 5.25%-5.5% as expected. In addition, the dot plot also maintained expectations for three interest rate cuts this year. This "reassurance" eased investors' concerns that the Federal Reserve would take a more hawkish stance.
The three major U.S. stock indexes collectively closed higher. The Dow initially closed up 1.03%, the S&P 500 rose 0.89%, and the Nasdaq rose 1.25%, all hitting new closing highs. The U.S. dollar index (DXY), which measures the strength of the U.S. dollar against other major currencies, was higher than during the session. The index fell nearly 0.7%, indicating that investors' risk appetite has increased.
After the Federal Reserve meeting, Bitcoin reversed higher, hitting an intraday high of $67,781. BTC had fallen to $60,793.60 earlier in the day.
Ethereum recovered from a 6% loss earlier in the day to trade back to $3,379.43 after Coindesk and other foreign media reported that the Ethereum Foundation faced investigations from unnamed governments and the U.S. SEC into classifying the asset as a security.
Solana rose 7%, Dogecoin (DOGE), Litecoin (LTC) and Bitcoin Cash (BCH) led gains among major altcoins, with Polygon’s Matic token rising 1.5%.
Cryptocurrency-related stocks rebounded en masse. Coinbase rose 11%. MicroStrategy rose 9% after falling about 20% earlier in the week. In the crypto mining sector, Iris Energy and CleanSpark rose 26% and 22% respectively, Marathon Digital rose 16%, and Riot Platform rose 11%.
Fed doesn't trim rate cut expectations
Ahead of the meeting, some investors were concerned that a recent series of inflation reports could lead to smaller rate cuts than markets expected. But the Fed reiterated its December forecast that it planned to cut interest rates three times before the end of the year. Even so, the Fed said it needed more evidence that inflation was slowing before it began to ease monetary policy. The central bank said: "The committee expects that in the review period, It would be inappropriate to reduce the target range until we are more confident that inflation is moving towards 2% on a sustained basis."
David Russell, head of global market strategy at TradeStation, said: "Inflation has increased this year, but Jerome Powell has not changed his tone. Investors are relieved that three rate cuts are still retained in the dot plot, which supports the market and Risk appetite.”
Zach Pandl, managing director of Grayscale Research, predicted in a report that the coming situation could support the price of Bitcoin. Pandl believes: "If rate cuts remain the base case, the cryptocurrency outlook still looks favorable. A soft landing in the economy, Fed rate cuts, and a contentious presidential election should be a supportive macro backdrop for Bitcoin."
Analyst: US$50,000-52,000 is the “bottom line” for this bull market
Bitcoin's recent weakness began as traders began taking profits, with the currency surging from the start of the year to a peak of around 70% last Wednesday. Data from CryptoQuant shows that on March 12, there was a significant increase in the number of short-term holders selling Bitcoin at a profit. According to CoinGlass, this profit-taking led to a surge in long liquidations on leveraged Bitcoin positions that continued into the beginning of the week.
Additionally, Bitcoin ETFs have also seen some cooling, with net outflows totaling $154.4 million on Monday, according to BitMEX Research. This is the first time since March 1 that the ETF has recorded net outflows.
Citi analyst Alex Saunders said in a report on Wednesday: “The ETF-led rally has at least temporarily stalled as net inflows have begun to slow. Since listing, spot Bitcoin ETF inflows have totaled $12 billion, but in Slowing inflows could lead to weaker price action following Bitcoin’s recent all-time highs.”
Vijay Ayyar, vice president of international markets and growth at cryptocurrency exchange CoinDCX, said in an interview with Bloomberg that in previous Bitcoin bull markets, when the market started to heat up, a 20%-30% correction was normal, but if Bitcoin fell below the $60,000 threshold and may weaken further to test the $50,000 to $52,000 levels, which will be the bottom line to sustain this bull run.
Ruslan Lienkha, head of markets at YouHodler, said Bitcoin prices will continue their long-term upward trend and viewed the recent correction as a “breather” ahead of Federal Reserve Chairman Powell’s speech today, saying: “Before the next price rally to all-time highs, We may see prices consolidate for a while, trading around $10,000 above and below current levels. So now is just another opportunity for long-term investors to accumulate long positions.”
Lienkha added: “As futures funding rates have begun to normalize, more frequent market volatility has moderated, meaning there is less need for leveraged exposure to cryptocurrencies. However, open interest and trading volumes remain high.”
Markets are now pricing in at least one rate cut before the July 31 FOMC meeting, with rates lower by about 50 to 100 basis points by the end of 2024, according to CME FedWatch Tool.
