Fade of Fed Rate Cut Hopes Casts Shadow on Crypto Market, Correction on the Horizon?

Author : Dency Emily | Published On : 21 Feb 2024

The cryptocurrency market is currently basking in a wave of optimism, evident in the record-breaking inflows into investment funds and bullish projections for Bitcoin's future. However, amidst this positive sentiment, concerns about a potential near-term correction and the Federal Reserve's stance on interest rates cast a shadow of uncertainty.

Jag Kooner, Head of Derivatives at Bitfinex, issues a cautionary note, suggesting that the market might experience a downside correction. The cause, he points out, lies in the market's overestimation of the likelihood of the U.S. Federal Reserve implementing interest rate cuts soon. A delay in the expected rate cuts could trigger risk-averse sentiment, potentially impacting Bitcoin and other cryptocurrencies negatively.

Federal Reserve Chair Jerome Powell's dismissal of the possibility of an earlier rate cut in 2024 contradicts wider market expectations. Powell, in an interview with CBS' 60 Minutes, stated that a rate cut in March is "not likely" to happen. He emphasized the Fed's desire for more confidence that inflation is moving down to 2%, expressing skepticism that the committee will reach that level of confidence in time for the March meeting.

Despite these uncertainties, Coinshares reports an unprecedented inflow of $2.45 billion into digital asset investment products last week, marking the highest on record. This surge is largely attributed to the emergence of U.S. spot Bitcoin ETFs, propelling total assets under management (AUM) to $67 billion, surpassing the peak seen in December 2021. These figures indicate a substantial rise in investor interest in the crypto space.

CoinMarketCap data reveals that the cryptocurrency market cap stands at $1.99 trillion, representing a 0.09% increase over the last day. Bitcoin's dominance is currently at 51.72%, with a slight decrease of 0.09% over the day.

IntoTheBlock, an on-chain data analytics firm, contributes to the optimistic narrative for Bitcoin. Their analysts predict an 85% chance of Bitcoin reaching a new all-time high within six months. Factors influencing this positive forecast include the upcoming Bitcoin halving event, the prominence of spot Bitcoin ETFs, potential monetary easing by central banks, U.S. elections, and the trend of companies adding Bitcoin to their treasuries.

Coinbase analysts echo this positive outlook, anticipating continued support for Bitcoin's price in the coming months due to the growing involvement of institutional investors through newly launched spot Bitcoin ETFs. Coinbase reports significant net inflows, totaling over $4.2 billion year-to-date, drawing parallels to the successful launch of Gold ETFs and suggesting a potential trajectory for Bitcoin to attract substantial institutional capital.