Bitcoin and other cryptocurrencies find themselves in a precarious position following a series of dramatic price fluctuations. BlackRock’s chief executive has warned that the market might soon face even more turbulence. Currently, Bitcoin is trading lower than it was at the same time last year, causing traders to worry about potential shocks as January approaches. After reaching an impressive peak of $126,000 last October, Bitcoin has struggled to maintain its momentum.
Meanwhile, investor Kevin O’Leary, known from the show “Shark Tank,” has raised concerns regarding the Federal Reserve’s actions. Many traders are preoccupied with anticipating the Fed’s strategy regarding its massive $6.5 trillion balance sheet, which has undergone significant contraction since the height of the COVID-19 pandemic.
Michael Kelly, global head of multi-asset at PineBridge Investments, expressed the market’s uncertainty surrounding whether the Fed would maintain its balance sheet at its current level or begin expanding it again. Analysts from Bank of America predict that the Fed may announce plans to grow its balance sheet by $45 billion per month starting in January, with a substantial portion allocated to offset reserve drains.
Roger Hallam from Vanguard also indicated that the Fed might resume buying bonds as economic demand for reserves increases. The Fed’s quantitative tightening, initiated in 2022, has notably impacted risk assets like Bitcoin, as liquidity has been purposely drawn from the market. As of early December, the Fed concluded this tightening phase.
Cathie Wood of Ark Invest highlighted the potential impact of improved liquidity conditions, supporting her long-term Bitcoin price prediction of $1.5 million. As the market anticipates a significant interest rate decision from the Fed’s upcoming Federal Open Market Committee (FOMC) meeting, there’s a near-90% consensus that a rate cut will be announced. However, market analysts caution that any deviation from this expectation could lead to a downturn in Bitcoin’s price.
Analysts note that the uncertainty surrounding Bitcoin’s current hovering around the $90,000 mark reflects anxiety over the FOMC decision, and many expect that the anticipated cut could result in what is termed a “hawkish cut,” potentially unsettling market momentum.
With traders keeping a close eye on the Fed’s next moves, the ramifications for Bitcoin and the broader crypto market remain a hotly debated topic.
