and other cryptocurrencies were on pause Wednesday as traders awaited a key decision on interest rates from the Federal Reserve. After the best January for Bitcoin in a decade, bad news out of the central bank has the potential to start February off on a sour note.
The price of Bitcoin has risen less than 1% over the past 24 hours, hovering around $23,000. The largest digital asset has roared higher to start the year, gaining 40% as cryptos benefited from an improvement in investors’ appetite for risk. While Bitcoin remains at just a third of its late-2021 high, traders are increasingly optimistic that the bottom of a brutal bear market already has been hit—in the wake of the shock bankruptcy of FTX in November—and that cryptos are poised to march higher.
“Crypto fundamentals are taking a backseat here and the primary driver is what the overall appetite is for risky assets,” said Edward Moya, an analyst at broker Oanda. “Bitcoin appears to have massive resistance at the $24,000 level, so if the rally stalls after the Fed and mega-cap tech earnings fireworks, a consolidation back towards $20,000 could happen.”
Indeed, earnings Wednesday from tech giant
(ticker: META)—and peers
(AMZN) on Thursday—will hit sentiment for tech, likely leaking over to cryptos.
But the spotlight is on the Fed. Decades-high inflation and rising interest rates have been a key headwind for Bitcoin over the past year, with cryptos becoming more correlated with stocks against a macro backdrop that is unfavorable to risk-sensitive assets. Investors are hoping that the worst is over.
The Fed is expected to raise interest rates by a quarter of a percentage point on Wednesday. It’s another rate hike, but a marked slowdown in the pace of tightening financial conditions after a spate of much larger increases last year.
Crucially, investors want to see Fed Chairman Jerome Powell telegraph a more accommodative policy shift in order to keep momentum in the recent rally that carried the
Dow Jones Industrial Average
If Powell seems aggressive, expect a selloff. And it could be painful.
The recent rally in cryptos looks largely to be built on sand, with Bitcoin’s eye-popping jumps fueled by low liquidity and technical factors including a short squeeze pushing prices higher—not organic demand. Those same trends that have helped pump prices upward could accelerate a deep selloff. If the Fed falls short of investors’ hopes, Bitcoin may find itself spiraling downward.
Beyond Bitcoin, most other digital assets were on hold.
—the second-largest crypto—was less than 1% higher at $1,575. Smaller tokens or altcoins were a bit stronger, with
2% in the green and
up 1%. Memecoins were leveling out after a recent, independent rally, with
about 1% lower.
Write to Jack Denton at email@example.com
Read More: Bitcoin Pauses as Crypto Traders Await the Fed Decision. Brace for Volatility.