Bitcoin Price Faces Potential Reversal After Federal Reserve’s Key Decision

Bitcoin (BTC) reached an all-time high of $108,000 on December 17, continuing its impressive bull run that has gained momentum since 2023. The digital asset has surged by nearly 150% this year, driven by strong demand, diminishing supply growth, and the global trend of central banks unwinding high interest rates.

Rising Demand and Diminishing Supply Fuel Bitcoin’s Surge

The recent surge in Bitcoin's price is attributed to several factors, including increasing investor demand and a tightening supply of the asset. As Bitcoin mining difficulty continues to rise, fewer coins are being added to the market, further contributing to the upward pressure on prices. According to data from SoSoValue, spot Bitcoin ETFs have now accumulated over $36 billion in assets, bringing the total value of Bitcoin ETFs to more than $120 billion. This remarkable growth signals that Bitcoin is beginning to rival gold in terms of investor interest, with some analysts noting that Bitcoin ETFs are quickly approaching the size of gold ETFs.

Eric Balchunas, a senior ETF analyst, pointed out that when combining all Bitcoin ETFs—spot, futures, and leveraged—the total assets exceed $130 billion, surpassing the $128 billion in gold ETFs. Even with just spot Bitcoin ETFs, Bitcoin is now competing closely with gold, with a total value of $120 billion compared to $125 billion for gold. This milestone marks a significant moment in Bitcoin's financial journey, underscoring its growing importance as a store of value.

Key Drivers Behind Bitcoin’s Long-Term Bullish Outlook

Looking ahead, the dynamics of supply and demand are expected to drive Bitcoin’s value even higher in the long term. With fewer coins available on exchanges and rising institutional interest, Bitcoin is increasingly seen as an attractive alternative to traditional assets. The success of companies like Microstrategy, which has grown into a $90 billion firm thanks to its Bitcoin holdings, further supports the notion that demand for Bitcoin will continue to increase, particularly among governments and corporations.

However, Bitcoin’s price may face near-term volatility, particularly with the Federal Reserve’s upcoming interest rate decision. Economists are anticipating a 0.25% rate cut, which would bring the total cuts for the year to 1%. Historically, Bitcoin and other risk assets tend to perform well when the Fed cuts rates, as investors shift funds away from low-yielding money market accounts to higher-risk assets.

Potential Hawkish Tone from the Fed Could Disrupt Bitcoin’s Momentum

Despite expectations of a rate cut, the Federal Reserve could dampen Bitcoin’s bullish momentum if it adopts a more hawkish tone in its policy outlook. This could happen if the Fed signals concerns over persistent inflation, which remains a challenge despite recent efforts to control it. Data released last week showed that the Consumer Price Index (CPI) rose to 2.7%, while core CPI, which excludes food and energy prices, remained at 2.2%.

With inflation still a significant concern, the Federal Reserve may opt to cut rates but deliver a more cautious outlook for the future. If this happens, Bitcoin’s price may experience a brief pullback, potentially testing support levels near $103,000.

Bitcoin Price Analysis: Bullish Trend Meets Potential Reversal

Bitcoin’s daily chart reveals a strong bullish trend, with the price remaining above key moving averages. This indicates that the bulls are still in control of the market. The formation of a cup-and-handle pattern suggests that Bitcoin could continue its upward trajectory. However, technical indicators also point to a possible reversal.

The chart shows the formation of a rising wedge pattern, a common signal of a potential price reversal. Additionally, both the MACD (Moving Average Convergence Divergence) and Relative Strength Index (RSI) have exhibited bearish divergence, which further suggests that a brief pullback may be imminent.

As a result, Bitcoin’s price could face a temporary dip following the Federal Reserve's decision. The $103,000 level is seen as a potential support zone, where the price may find footing before resuming its bullish trend.

Conclusion: Watch for the Fed’s Impact on Bitcoin’s Price Action

While Bitcoin has been riding a wave of bullish momentum in 2024, the upcoming Federal Reserve decision on interest rates could act as a catalyst for a short-term price reversal. If the Fed adopts a hawkish stance despite the rate cut, Bitcoin may experience some downward pressure. However, the long-term outlook remains bullish, driven by strong demand and limited supply, suggesting that Bitcoin’s upward trend could continue after any potential correction.