Bitcoin Surges 3.1% as Fed Eases QT, Analysts Predict New Highs

Bitcoin (BTC) price rose 3.10% to $85,846 on March 20 after the Federal Reserve announced its interest rate decision. According to the Federal Open Market Committee (FOMC), interest rates maintained their 4.25%—4.5% position, which is a sign that two future rate cuts would occur in 2025. Bitcoin gained strength when the market proved wrong about three to four interest rate cuts because the Federal Reserve did not reveal any new hawkish policies.

Historical data reveals that Bitcoin’s value rises during times of rate-easing policies since rate cuts from the past have generated significant price growth. The Bitcoin price rose by $9,000 from $3,000 to $12,000 during 2019-2020 prior to the start of coronavirus market disruptions. Bitcoin prices expanded beyond 600 percent from 2020-2021 after the Federal Reserve implemented its zero-interest policy.

Lower interest rates diminish the financial costs of holding Bitcoin, making investments more appealing to people who work with cryptocurrencies. The Federal Reserve projected a delay of its balance-sheet reduction beginning in April. The move indicates that financial conditions will become less stringent, which previously supported Bitcoin and other risk assets.

Fed Slows Quantitative Tightening, Boosting Liquidity

Federal Reserve (Fed) officials declared their plan to reduce the pace of balance-sheet cuts beginning in April. The Fed plans to decrease Treasury runoff to $5 billion from an earlier $25 billion, but MBS runoff stays at $35 billion per month. Bitcoin has experienced significant growth since liquidity reinstated itself in financial markets throughout history.

Early in 2022, the Federal Reserve balance sheet reached its peak value at $9 trillion just before the start of quantitative tightening (QT). Because of reduced market liquidity, Bitcoin’s price declined from $69,000 in November 2021 to $15,500 during November 2022. From November 2022, when the Fed began reducing its assets, Bitcoin experienced a 450% price increase.

Financial market conditions changed favorably, affecting all sectors within them. Recently, the U.S. dollar dropped to become the third-largest three-day depreciation since 2015. The levels of Treasury yields and bond market volatility decreased substantially.

Analysts Predict Bitcoin’s Potential All-Time High

According to Jamie Coutts, Real Vision’s Chief Crypto Analyst, recent fluctuations in economies point toward Bitcoin reaching new all-time highs. Previous liquidity increases triggered Bitcoin to surge significantly during the ensuing ninety-day period. Recent liquidity operations by China’s People’s Bank of China (PBoC) could boost Bitcoin’s market ascent.

In its present trading phase, Bitcoin interacts between $100,000, an influential price barrier, and $77,330, its technical support boundary, which crosses the 50-week exponential moving average. The Federal Reserve expects inflation to stay elevated at 2.8% through 2025 instead of its previous projection of 2.5%. High continued inflation rates would result in Bitcoin market fluctuations because investors must determine its effectiveness in protecting against rising prices.

Bitcoin has displayed inconsistent responses when inflation rises in the economy. The price of Bitcoin decreased by 75% between the start of the 2021-2022 inflation surge and reached its peak again with a 200% increase during 2023-2024. Bitcoin analysts track macroeconomic indicators as institutions enhance their interest in Bitcoin following its 4% price rise after the Federal Reserve action.

FAQs

Why did Bitcoin’s price rise after the Fed’s decision?

Bitcoin rallied 3.10% as the Federal Reserve kept rates steady and signaled no additional hawkish measures. Easing liquidity conditions supported the price increase. Investors reacted positively to the Fed’s plan to slow quantitative tightening.

How does lower interest rates impact Bitcoin?

Lower interest rates reduce the opportunity cost of holding Bitcoin. Historically, Bitcoin has surged during rate-cutting cycles. Reduced borrowing costs also increase investor appetite for risk assets.

What does the Fed’s quantitative tightening slowdown mean for Bitcoin?

Slowing balance-sheet reduction signals looser financial conditions. Historically, Bitcoin has performed well when liquidity returns to markets. Investors see this as a positive shift for Bitcoin’s long-term trajectory.

Will Bitcoin reach an all-time high in Q2?

Analysts predict Bitcoin could reach new highs before Q2 ends. Jamie Coutts highlights the impact of increased liquidity measures. Bitcoin’s consolidation range suggests potential for further gains.

How does inflation impact Bitcoin’s price?

Bitcoin’s inflation-hedge reputation remains mixed. It declined during the 2021-2022 inflation spike but surged in 2023-2024. Persistent inflation may drive investors toward alternative assets like gold.

Glossary

Jamie Coutts, Chief Crypto Analyst at Real Vision

Jamie Coutts is a leading analyst in the cryptocurrency sector. He provides market insights and forecasts on Bitcoin’s price trends. His expertise focuses on macroeconomic factors influencing crypto markets.

Federal Open Market Committee (FOMC)

The FOMC is a branch of the Federal Reserve responsible for setting monetary policy. It decides on interest rates and financial conditions. Its decisions impact the economy and financial markets.

Quantitative Tightening (QT)

QT refers to the process of reducing the Federal Reserve’s balance sheet. It removes liquidity from financial markets. This process can negatively impact risk assets like Bitcoin.

Psychological Resistance

Psychological resistance is a price level where assets face strong selling pressure. Investors view these levels as significant, affecting price movements. For Bitcoin, $100,000 serves as a key resistance level.

Exponential Moving Average (EMA)

An EMA is a type of moving average that weighs recent prices more. Traders use it to identify trends and price momentum. The 50-week EMA is a key technical indicator for Bitcoin.

Reference: 

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