How the Federal Reserve Tapering Drastically Affects The Cryptocurrency Market’s Price Movement

Market Moves and Federal Reserve Decisions

On Wednesday, the minutes from the Federal Reserve’s December meeting were released, revealing concerns among Fed officials about persistently high inflation. As a result, Bitcoin fell below $44,000, causing ripples across the entire cryptocurrency market. A report from CoinDesk indicated that Bitcoin was trading at approximately $40,000 at the time of writing, reflecting a 5.87% decline over the last 24 hours. Following the release of the minutes at 19:00 UTC, Bitcoin saw an immediate 2.73% drop, reaching $44,500 on the hourly chart.

 

Federal Reserve officials discussed the need to raise interest rates sooner than expected due to inflation and economic conditions. “Participants said that, based on their views about the economy, the labor market, and inflation, it may be appropriate to raise the federal funds rate sooner or at a faster pace than participants had thought.” Additionally, some members suggested reducing the Federal Reserve’s balance sheet as soon as possible, further indicating a tightening monetary policy.

The Impact of Federal Reserve Tapering on Cryptocurrencies

CoinDesk noted that Bitcoin and other traditional risk assets could be under increased pressure if the Federal Reserve moves forward with raising interest rates and reducing its balance sheet in March. Historically, the crypto market has reacted similarly to the stock market, particularly the tech-heavy Nasdaq index, when monetary policies change. Bitcoin is often viewed as a hedge against inflation. However, its correlation with high-risk assets means that any tightening of monetary policy by the Federal Reserve could impact its price. After the Fed released its minutes, the S&P 500 and Nasdaq both experienced a decline. Meanwhile, the yield on 10-year Treasury bonds increased, leading to a drop in U.S. Treasury prices.

Market Trends and Future Predictions

The market downturn wasn’t limited to Bitcoin. Ethereum (ETH) also saw a significant drop. TradingView’s hourly chart showed that ETH fell by 2.51% to $3,644.44 within the hour following the Federal Reserve’s announcement. Earlier in the day, Ethereum had surged to nearly $3,900 during U.S. trading hours before reversing course. Technical analysts pointed out that Bitcoin’s price dipped below the crucial $45,000 support level, which had held for over a month. If Bitcoin remains under this level, short-term buyers may hesitate to enter the market, limiting potential price rebounds. Currently, Bitcoin is struggling to break above $50,000 due to weakened upward momentum. This downtrend has persisted since November when Bitcoin reached an all-time high of nearly $69,000.

Key Support and Resistance Levels

Bitcoin hit a low between $40,000 and $42,000 during its December crash, a range it has tested multiple times. If this level breaks, analysts predict further declines, with key support levels around $38,000. On the upside, Bitcoin must regain strength above $50,000 to reverse the bearish trend and attract more bullish sentiment in the market. With Federal Reserve tapering on the horizon, cryptocurrency investors should prepare for heightened volatility in the months ahead. Understanding the correlation between Federal Reserve decisions and the crypto market will be crucial for traders looking to navigate the market successfully.

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Disclaimer: Information on this site is for informational purposes only and should not be considered financial advice. We are not financial advisors, and our content should not be taken as professional recommendations. Consult a qualified financial advisor before making any decisions. We are not liable for any losses resulting from reliance on our content.

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