Bitcoin faces troubles: Fed’s rate hikes stir market uncertaint

Bitcoin’s price struggled to hold at $42,381 on begining of February. This may happen to differents factors.

The recent struggle of Bitcoin to maintain its position above the $43,000 mark can be attributed to a series of events that influenced market sentiment and investor expectations. Here’s a breakdown of the key factors at play:

• Federal Reserve’s Stance on Interest Rates: The Federal Reserve Chair, Jerome Powell, in a 60 Minutes interview, highlighted that the Fed requires more evidence of inflation approaching the 2% target before considering interest rate adjustments. Despite a positive outlook on the economy, Powell’s remarks on potential rate cuts, which appear less immediate and certain than the market anticipated, have contributed to the uncertainty. This discrepancy between the Fed’s cautious stance and investors’ expectations for early rate cuts has had a ripple effect on various markets, including cryptocurrencies like Bitcoin.
• Comments from Minneapolis Fed President Neel Kashkari : Adding to the cautious tone set by Powell, Neel Kashkari‘s essay suggested that the Federal Reserve might delay any decisions on reducing interest rates. Kashkari’s argument that the current monetary policy may not be overly tight, given the ongoing economic growth and low unemployment, further dampened hopes for imminent rate cuts.
• Labor Market Data: The release of stronger-than-expected labor market data for January, with nonfarm payrolls surpassing estimates and a significant increase in average hourly earnings, challenged the narrative that the Fed might ease its interest rate policy soon. This data suggests that the economy remains robust, which could keep inflationary pressures alive, thereby necessitating a firmer stance on interest rates by the Fed.
• Impact on Bitcoin and Market Speculation: The confluence of these factors has led to a bearish sentiment in the Bitcoin market. The high interest rate environment, underscored by the surge in the 2-year U.S. Treasury yield to its highest level since December 2023, reduces the attractiveness of riskier assets like Bitcoin. Investors and traders, wary of the short-term risks and the Fed’s cautious approach to interest rate cuts, may be holding back from placing leverage longs in BTC derivatives markets. This caution is driven by the potential for further declines in Bitcoin’s price, with some speculating a drop to the $40,000 level.