© Reuters
The price rose on Wednesday, reversing earlier losses following a dovish Federal Reserve meeting. At the time of writing, Bitcoin price was trading at $66,788, up 4.5% on the day.
Earlier in the day, a broader risk-off move in currency markets saw traders pivot towards the dollar as they collected profits in Bitcoin after it hit all-time highs of over $73,000 in early March.
It hit a two-week high ahead of the conclusion of a Fed meeting later in the day, where the central bank is widely expected to keep rates steady and offer more signals on when it plans to start cutting interest rates.
The price of Bitcoin had fallen as low as $60,771.1 earlier in the day.
Adding to the downward pressure on Bitcoin, the token saw a sudden drop on the BitMEX crypto exchange, where it sank as low as $8,900 following a series of massive sell orders on Tuesday. BitMEX said it was investigating possible irregularities.
Since reaching its recent all-time highs, the entire cryptocurrency market had lost approximately $400 billion in value, with significant drops also seen in other digital currencies such as Ether and . However, ahead of the FOMC meeting, Bitcoin and other cryptocurrencies have made some gains.
“We are seeing a natural market shift right now, which is the culmination of several important factors,” Nejc Krzan, director of NiceX Exchange, told Investing.com.
Among other things, he added that “many investors who recently entered the market and expected the price of BTC to continue surpassing the all-time high and rising further, have sold for short-term profits.” This is probably the key reason why Bitcoin price is correcting from new all-time highs.
Looking ahead, Jonny Huxtable, CEO of LinkPool, told Investing.com that they “anticipate a sideways and downward cut before the halving and for some time afterward it will be similar to the 2015-2017 uptrend.”
“BTC is seeing more demand than ever, and with its daily production about to be cut in half, we anticipate an unprecedented market reaction to the huge supply shock BTC will face to date,” he added.
Fed's dovish stance pushes market into risk-on stance
The Federal Open Market Committee has given a boost to risk sentiment by adjusting growth and rate projections upward. In this way, the FOMC shows its confidence in the economy's ability to achieve a “soft landing”, creating a favorable scenario for risk assets, including Bitcoin.
The Federal Reserve's revision of its 2024 growth forecast aligns with current consensus views, but it has also raised its projections for 2025 and 2026 to 2%, showing even more optimism than many economists. Additionally, with unemployment forecasts remaining stable, the Federal Reserve does not foresee a significant increase from the current 3.9%.
Fed Chairman Powell presented a relatively dovish outlook during his press conference. He suggested that the possible seasonal influences of the recent inflation data do not alter the general narrative of cooling price increases and the possibility of reduced interest rates.
Powell also indicated that the pace of quantitative tightening (QT) could soon slow.
Bitcoin Capital Inflows Continue, But Grayscale Is a Point of Contention
Data from digital asset manager CoinShares showed earlier this week that Bitcoin-linked investment products saw total inflows of $2.86 billion last week, as its newly approved ETFs continued to attract investor interest.
But the Grayscale Bitcoin Trust (BTC) (NYSE: GBTC) saw sustained outflows of a whopping $1.25 billion over the past week. This caused the fund manager's assets under management to plunge by approximately $2 billion in the past week, adding to selling pressure on Bitcoin.
Still, Bitcoin remained up around 50% so far in 2024, having seen massive buying after the Securities and Exchange Commission approved spot ETFs in US markets.
Anticipation of the token halving event, which halves the rate at which new Bitcoin is generated every four years, is also expected to support the cryptocurrency. The halving event will take place in April.
Analysts said Bitcoin's current weakness presented a buying opportunity for the token ahead of its halving.
(Ambar Warrick, Vahid Karaahmetovic and Sam Boughedda contributed to this article.)
