Powell unexpectedly sang "dove", and the expectation of a rate cut increased, BTC broke through $43,000 in the short term

Author: BitpushNews Mary Liu

On the afternoon of December 13, Eastern time, the Federal Reserve maintained interest rates in the current range of 5.25%-5.50% as scheduled, marking the fourth pause in interest rate hikes this year after keeping interest rates unchanged in November, September and June.

Even more surprisingly, the Fed signaled its clearest signal yet that it was predicting a series of rate cuts next year, which were larger than economists had expected. The Fed now expects the federal funds rate to be just 4.6% by the end of 2024, compared to 5.1% three months ago, implying three 0.25 percentage point rate cuts next year.

After the announcement, BTC rebounded above $43,000, a 24-hour gain of more than 4%, but still not back to the yearly high of more than $44,300 in early December. The global crypto market capitalization currently stands at $1.65 trillion, up 3.6% in the last 24 hours. Altcoins such as Avalanche (AVAX), Cardano (ADA), and Injective (INJ) rose nearly 10%.

In addition to the interest rate announcement, the Fed also released quarterly updated economic projections. The central bank now expects core inflation to be 3.2% in 2023, compared to 3.7% three months ago. The final growth rate is now expected to be 2.4% in 2024, compared to 2.6% previously. Real GDP growth has been revised downward to 1.4% from 1.5% in 2024.

Powell’s dovish turn

Fed Chair Jerome Powell’s speech at the press conference alarmed economists, who sent the clearest signal to date that monetary policy tightening is over and that rate cuts “are now on the table.” Industry insiders described the press conference as more dovish than expected.

“We’re seeing strong growth that seems to be slowing down,” Powell said. We’re seeing the labor market getting back into balance, and we’re seeing real progress in inflation. These are the things we’ve always wanted to see,"

JPMorgan Chase economist Michael Feroli said it was like “12 pigeons jumping”.

“Just 12 days ago, Powell postponed interest rate cut speculation and now revealed that the FOMC is openly discussing future easing,” asset manager NewEdge Wealth said on platform X. Therefore, today’s meeting is a real pivot by the Fed, which has a significant impact on financial conditions. ”

Fed decision and crypto markets

The Federal Reserve’s interest rate decision directly affects the cryptocurrency market because they can influence investor behavior. When the Fed raises interest rates, traditional investment asset classes, such as bonds and other fixed income assets, are more attractive to investors due to stable returns. Investors, in turn, move their money away from volatile assets such as cryptocurrencies, resulting in reduced demand and potentially causing price corrections or falls.

Once interest rates fall, the market’s risk tolerance becomes stronger, and money begins to flow back into the equity and crypto markets from less volatile asset classes.

Due to rising inflation, the Fed began tightening interest rates in March 2022, raising them from lows of 0% to 0.25%, with the most recent rate hike being in July.

U.S. Treasury yields, particularly securities with maturities of 2 to 7 years, have fallen by more than 15 basis points. These changes suggest that monetary policy may be more accommodative, implying an environment conducive to the growth of risk assets such as BTC.

Current interest rate futures point in a more than 60% chance of a rate cut by March 2024. The likelihood has risen sharply, with expectations of a rate cut in May soaring to 90%.

“Historically, maintaining or lowering interest rates has tended to bring optimism to investors because it means more disposable income and potentially greater investment in a variety of asset classes,” Bitfinex analysts said. "This impact is not limited to traditional markets and extends to new types of assets such as cryptocurrencies. ”

ETFs and the catalyst for the halving

With 2024 rate cut expectations, ETF approvals, and the BTC halving event in April, the underlying momentum for BTC price increases seems to be very strong.

Bitui previously reported, including BlackRock (BLK. N) and several other major financial firms have filed with the SEC to launch spot BTC ETFs that, if approved, could attract huge institutional inflows into cryptocurrencies. U.S. crypto firm NYDIG estimates that demand for spot BTC ETFs is around $30 billion. Their calculations compared the size of gold and BTC ETFs ($210 billion and $28.8 billion, respectively) and adjusted for their relative volatility.

The next BTC “halving” is expected in April next year. This process is designed to slow down the issuance of BTC, and the supply of BTC is capped at 21 million, of which 19 million have already been minted.

CoinShares analyst Butterfill said BTC had rebounded in the previous three halvings, the most recent of which was in 2020. However, given the different market conditions, it’s unclear whether this one will trigger another rally. “If we combine that with high demand for US ETFs, and reduce the amount of new supply, it could have an impact, but I would remain cautiously optimistic,” he said.