Bitcoin Drops to $42K USD as FED Holds Interest Rates Steady

Bitcoin faced headwinds on Wednesday as the U.S. Federal Reserve opted to maintain steady interest rates, extinguishing hopes for a potential rate cut in March. The Fed, during the Federal Open Markets Committee press conference on Jan. 31, emphasized the need for “greater confidence” in addressing inflation pressures before considering any rate adjustments, setting a range of 5.25%-5.50% for interest rates.

Analyst Tony Sycamore from IG Markets cautioned that the Fed’s hawkish stance could spell trouble for U.S. equities and risk assets like Bitcoin. Sycamore remarked, “Unless tomorrow’s earnings reports from Apple, Amazon, and Meta exceed expectations, anticipate a further decline in U.S. equities in the coming sessions, putting downward pressure on other risk assets, including Bitcoin.”

Bitcoin responded to the FOMC announcement with a decline of just over 2.2%, currently trading at $41,929. Despite this setback, the cryptocurrency is still showing a 7% gain for the week according to TradingView data. The Fed Reserve Board stated, “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

The Federal Reserve emphasized its optimistic view of the economy, citing “solid” expansion marked by sustained job growth and a decrease in the unemployment rate. Despite acknowledging a moderation in inflation over the past year, the Fed maintained a cautious stance, indicating that the current level of inflation doesn’t guarantee a certainty of rate cuts.

While rate cuts are typically seen as favorable for risk assets like cryptocurrencies and tech stocks, the Fed’s commitment to a prudent approach has cast uncertainty. The central bank highlighted the unpredictable economic outlook and a vigilant stance on inflation risks.

IG Markets analyst Tony Sycamore expressed a belief that Bitcoin’s downward trend would persist due to waning risk sentiment fueled by the Fed’s hawkish stance. He pointed out that the disappointment stemming from the Federal Open Market Committee (FOMC) meeting, coupled with yesterday’s earnings report misses from Microsoft, Alphabet, and AMD, contributed to risk aversion flows.

Sycamore projected a potential rally toward the $45,000 mark before anticipating a return to the mid-$30,000 region. Despite the short-term challenges, he maintained an optimistic outlook, expecting Bitcoin’s overall upward trajectory to resume in the aftermath of these fluctuations.