Bitcoin Will Drop In The Short Term But Roar As Fed Slash Rates

The Bitcoin price remained under pressure on February 1, hours after the United States Federal Reserve (Fed) held interest rates steady on January 31. The dip in the world’s most valuable cryptocurrency is unexpected.

Recent data suggests that analysts expect the central bank to drastically chop interest rates from their multi-year high, which will likely lift Bitcoin. 

Pain For Bitcoin In The Short Term

In a follow-up analysis following this decision, Alex Krueger, a crypto analyst and economist, believes Bitcoin prices will likely fluctuate in the short term but recover in the long term as the Fed begins lowering interest rates. 

Related Reading: Bullish Golden Cross Forms On Altcoins Chart, Crypto Analyst Expects Big Moves

Taking to X on February 1, the analyst argued that the Fed’s decision to hold rates steady was a “hawkish” move intended to temper market expectations. However, Krueger maintained that the Fed’s overall stance is dovish and that interest rate cuts will likely materialize in May or June.

The analyst also acknowledged that the market is currently “pricing in too many rate cuts for 2024.” Despite the recent plunge, the analyst believes Bitcoin prices will likely continue correcting quickly before bouncing back sharply in the weeks and months ahead.

Krueger contrasted the current Fed policy environment with the situation in 2022. Then, the analyst noted that many in the crypto scene believed rate cuts were overly bearish for Bitcoin. 

In the post on X, the economist attempted to debunk this preview, explaining that rate cuts are only bearish if at the back of a strong recession. Multiple market observers think this is not the case, citing tapering inflation data.

Beyond this, the economist noted that the Fed “put” is back on after two years. Analysts interpret this “put” as a commitment by the United States central bank to provide liquidity and support to the financial markets if needed. Between 2020 and 2021, the Fed employed a loose monetary policy, injecting trillions of dollars into the economy while showing its readiness to support banks.

Will BTC Break Above $50,000?

As it is, Bitcoin prices remain in an uptrend, looking at technical candlestick arrangement in the daily chart. Though the coin is nowhere close to December 2023 highs and under pressure when writing, buyers have the upper hand. 

The immediate support level is around $39,500, recorded in January 2024. If the uptrend is to resume, sparked by macro events, including inflation in the United States and the strength of its labor market, prices must break above $50,000.

Feature image from Canva, chart from TradingView