Bitcoin Surges Following Fed's Steady Stance

Bitcoin found new footing, rising last night as market sentiments turned positive after assessing the implications of the Federal Reserve’s latest policy stance. The digital currency saw a 9.13% uptick, with its value reaching AU$103,128.10 (US$68,000), bouncing back from a low of AU$92,477.83 (US$60,793.60).

Cryptocurrency markets rallied upon the conclusion of the Fed's two-day policy meeting, which resulted in maintaining the current rates and signalling several potential rate cuts within the year. Like technology stocks, bitcoin often thrives in an environment of low-interest rates and heightened market liquidity, fostering optimistic investment climates for growth-oriented assets.

Owen Lau, Executive Director at Oppenheimer, observed, “There has been an inverse relationship between rates and bitcoin price. With the Fed’s interest rate hike in 2022, we saw a liquidity withdrawal affecting both bitcoin and tech stocks negatively. Conversely, rate cuts typically inject liquidity into the market, benefitting risk assets like bitcoin. Bitcoin exhibits a versatile market behaviour, occasionally mirroring high beta tech stocks.”

Despite reaching a new high of AU$112,384.52 (US$73,797.68) last week, Bitcoin has since retracted by 10% over the past week. Yet, it has still managed to maintain a robust 53% growth for the year.

Ethereum followed suit, with a 14.9% rise to AU$5,340 (US$3,521.73), building on its momentum after crossing the AU$6,090 (US$4,000) threshold last week.

The recent pullback in Bitcoin began as traders secured profits from the approximately 70% year-start surge to last Wednesday’s peak. CryptoQuant data reflected a substantial rise in short-term holders cashing in on March 12. This profit-taking triggered a spike in leveraged long positions liquidations, which persisted into this week.

“We’ve observed 20%-30% pullbacks in previous bitcoin bull cycles as a norm when market excitement surges. Last week, we certainly had ample signs of market heating,” noted Vijay Ayyar, Vice President of International Markets and Growth at CoinDCX.

Anticipating the Halving and ETF Demand

Bitcoin’s upcoming halving event, set for April 19th, where the mining reward halves from 6.25 to 3.125 BTC, adds to the market’s anticipation. While past halvings have charted a predictable course of price spikes followed by pullbacks, the current market trajectory ahead of the halving appears less clear, influenced by the strong demand for BTC spot ETFs.

Market watchers debate whether the upcoming halving is already reflected in Bitcoin's current price, similar to anticipated developments affecting stock valuations.

Yet, a "demand shock" could drive prices up, mitigating traditional mining industry challenges. Moreover, the burgeoning growth of Layer 2 solutions atop the Bitcoin Network has boosted transaction fees, dulling the halving's sting. With miners increasingly retaining Bitcoin rather than selling, supply pressure eases.

Halving’s implications are straightforward: Post-halving, the available Bitcoin for sale will halve, directly impacting supply. Should ETF demand persist, this dynamic is expected to amplify market volatility.

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