Bitcoin Price Could Face Sharp Reversal Following Fed Decision

Bitcoin’s price has soared to a new record high of $108,000 on December 17, continuing its impressive bull run that began in 2023. This remarkable surge represents a nearly 150% increase in Bitcoin’s price this year, fueled by strong demand and decreasing supply growth. One of the key drivers behind this rally is the unwinding of high interest rates by the Federal Reserve and other central banks, which has provided a favorable environment for risk assets like Bitcoin.

Data from SoSoValue reveals that Bitcoin spot ETFs have accumulated over $36 billion in assets, pushing the total combined value of Bitcoin ETFs to more than $120 billion. This surge indicates that Bitcoin is increasingly being viewed as a store of value, competing with traditional assets like gold for investor attention.

On the supply side, Bitcoin’s growth has been constrained. Mining difficulty has surged, and data from CoinGlass shows that the amount of Bitcoin remaining on exchanges has decreased throughout the year. These supply and demand dynamics suggest that Bitcoin’s price could continue to rise in the long term, particularly as more institutional players enter the space. Notably, MicroStrategy, a business intelligence company, has transformed into a $90 billion firm largely by accumulating Bitcoin, which highlights the growing corporate adoption of the cryptocurrency.

Looking ahead, the next major catalyst for Bitcoin’s price could be the Federal Reserve’s decision on interest rates, set to be announced on Wednesday. Economists predict that the central bank will cut rates by 0.25%, marking a 1% reduction in rates for the year. Historically, Bitcoin and other risky assets tend to perform well when the Fed cuts rates, as investors often shift their capital away from low-yielding money market funds in search of higher returns in riskier assets like Bitcoin.

However, there is a potential downside risk if the Fed adopts a more hawkish stance in response to persistent inflation. Despite some signs of slowing inflation, recent data indicated that inflation remains a significant issue, with the Consumer Price Index (CPI) rising to 2.7% and Core CPI, which excludes food and energy prices, holding steady at 2.2%. The Fed may decide to adopt a more cautious approach, especially considering concerns about the inflationary effects of policies associated with Donald Trump, such as tax cuts and tariffs.

Given these factors, there is a possibility that Bitcoin’s upward momentum could face a temporary disruption after the Federal Reserve’s decision. While the Fed is likely to cut rates, it may also deliver a more hawkish outlook, which could lead to a short-term pullback in Bitcoin’s price.

Technical analysis of Bitcoin’s price chart also suggests that a reversal could be imminent. While Bitcoin has maintained a strong bullish trend and remains above all major moving averages, the chart reveals the formation of a rising wedge pattern, a common technical signal of potential price reversal. Additionally, both the MACD (Moving Average Convergence Divergence) and Relative Strength Index (RSI) indicators are showing signs of bearish divergence, suggesting that the upward momentum might be losing strength.

Given these signals, Bitcoin’s price could experience a brief pullback, potentially falling to around $103,000 following the Federal Reserve’s interest rate decision. This correction could be seen as a healthy consolidation before Bitcoin continues its broader upward trajectory. Nonetheless, if the price manages to maintain its position above the key moving averages and successfully breaks through the current resistance levels, the bull run could resume, pushing Bitcoin toward even higher price levels.

In conclusion, while Bitcoin has enjoyed an exceptional year, and demand dynamics suggest that its price could continue to rise in the long term, short-term risks remain. The Federal Reserve’s upcoming interest rate decision could play a pivotal role in shaping Bitcoin’s price action. Depending on the Fed’s stance, Bitcoin may experience a brief pullback before continuing its bullish trend, or it may face a more significant correction if the Fed adopts a more hawkish outlook. Investors should remain vigilant as these macroeconomic factors unfold.