Bitcoin’s Rally May Face Headwinds Ahead of January’s Key Federal Reserve Meeting, Analysts Predict

As Bitcoin continues its upward momentum, a rally led by expectations surrounding former U.S. President Donald Trump’s inauguration may encounter challenges as the month progresses. According to 10x Research’s founder, Markus Thielen, the Federal Reserve's decisions regarding interest rates remain a significant risk factor that could impede Bitcoin’s price surge in 2025.

Trump’s Inauguration Could Fuel Short-Term Bitcoin Rally

In a report released on January 5, Thielen projected a "positive start" for Bitcoin in early January, supported by optimism surrounding a possible rally ahead of Trump’s January 20 inauguration. This rally is expected to be particularly driven by anticipation of Trump’s influence on Bitcoin and crypto markets. Thielen noted that a favorable inflation reading—particularly the Consumer Price Index (CPI) data set to be released on January 15—could fuel this bullish sentiment.

“If inflation data comes in better than expected, it could reignite optimism in the market, fueling a rally into Trump’s inauguration,” Thielen said.

Federal Reserve’s Influence: Key Risk to Bitcoin’s Momentum

However, Thielen cautioned that this initial momentum could wane ahead of the Federal Open Market Committee (FOMC) meeting on January 29. The meeting will likely address interest rate decisions, with CME Group’s FedWatch tool currently indicating an 88.8% chance that the U.S. federal target rate will remain between 425 and 450 basis points after the meeting.

Bitcoin’s recent price movement reflects the sensitivity to Federal Reserve actions. Following the FOMC meeting on December 18, where the Fed trimmed its projected interest rate cuts for 2025 from five to two, Bitcoin experienced a sharp 15% decline, dropping to around $92,800.

Thielen identified the Federal Reserve's communication regarding inflation and interest rates as Bitcoin's “primary risk,” suggesting that a delay in the Fed's acknowledgment of lower inflation could keep market uncertainty high. He added, “We anticipate lower inflation this year, though it may take some time for the Federal Reserve to recognize and respond to this shift formally.”

Institutional Investor Activity and Market Sentiment

Thielen also pointed to institutional investor activity, especially stablecoin minting and Bitcoin exchange-traded fund (ETF) inflows, as critical indicators of Bitcoin’s future performance. A resurgence of institutional interest could further support Bitcoin's rally in the medium term.

In the short term, Thielen expects Bitcoin to stabilize in the range of $97,000 to $98,000 by the end of January, as market players assess the fallout from the FOMC meeting and upcoming CPI data.

Diverging Forecasts for Bitcoin’s Price in 2025

While Thielen predicts a pullback ahead of January’s end, other analysts, such as Ledn’s Chief Investment Officer, John Glover, have a more bullish outlook for Bitcoin’s trajectory in 2025. Glover forecasts that Bitcoin could dip to around $89,000 in the short term before bouncing back to $125,000 by the end of Q1 2025. From there, Glover anticipates a retracement to $100,000 before a potential surge toward $160,000 later in 2025 or early 2026.

This forecast is relatively conservative compared to the more aggressive predictions from asset management firms VanEck and Bitwise, which have set their sights on Bitcoin reaching $180,000 to $200,000 in 2025.

Market Sentiment: Extreme Greed Zone

Despite the mixed short-term outlooks, Bitcoin’s market sentiment is showing signs of optimism. As of January 5, the Crypto Fear and Greed Index—a measure of market sentiment—had returned to the “Extreme Greed” zone with a score of 76 out of 100. This reflects the growing bullish sentiment as Bitcoin’s price approached $98,850. The index had briefly fallen out of the Extreme Greed zone on December 27, 2024, but has remained in the “Greed” zone for the past 10 days, signaling investor optimism.

Conclusion: Caution and Optimism for Bitcoin’s Future

As Bitcoin navigates the uncertainties of January, key macroeconomic events—including inflation data and the Federal Reserve’s interest rate decision—will play a crucial role in shaping the cryptocurrency’s trajectory. While a rally fueled by Trump’s inauguration and favorable inflation data could provide short-term gains, the long-term sustainability of Bitcoin’s price depends largely on how the Federal Reserve addresses inflation and interest rates in the coming months. Investors will need to closely watch these developments as the year unfolds.

Despite the cautious outlook in the short term, sentiment in the broader cryptocurrency market remains strong, with many analysts anticipating Bitcoin’s resurgence later in 2025, potentially surpassing new price milestones.