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Bitcoin Price May Drop After Reaching $43,000 Amid High U.S. Interest Rates

2024-02-06 15:52:45

The Bitcoin price is near the $43,000 mark, prompting questions about the intentions of bullish investors to propel BTC to higher levels. 


The cryptocurrency faced challenges as it grappled with maintaining support at $43,000 on February 5. The difficulty arose following comments from U.S. Federal Reserve Chair Powell, who resisted market expectations for imminent interest rate cuts. The subsequent lack of enthusiasm from leveraged long positions in Bitcoin derivatives markets sparked speculation about a possible downturn to $40,000.

The Price of Bitcoin Declines While US Interest Rates Stay High

In a 60 Minutes interview on February 4, Federal Reserve Chair Jerome Powell provided clarification, indicating that the central bank committee requires more assurance regarding the inflation rate reaching the 2% target before taking any action. Despite expressing positive sentiments about the economy being in a favorable state, Powell mentioned the potential for three quarter-point rate cuts this year based on official projections, contingent on the behavior of the job market. This, however, contradicted investors' expectations of interest rate cuts beginning in March.

Further adding to the pressure on Bitcoin's price was an essay from Minneapolis Fed President Neel Kashkari on February 5, suggesting that the monetary authority might take time before implementing interest rate reductions. Kashkari argued that the current stance of monetary policy may not be as tight as perceived, citing ongoing economic growth and low unemployment. Concerns among fixed-income investors were heightened by the February 3 labor market data, challenging the Fed's efforts to curb inflation. January's nonfarm payrolls exceeded estimates at 250,000, with average hourly earnings experiencing a 0.6% increase, the most significant since March 2022. 

As a result, the 2-year U.S. Treasury yield reached 4.48%, its highest level since December 13, 2023, indicating reduced confidence in potential interest rate cuts. Despite the potential long-term benefits associated with Bitcoin's scarcity and its ability to navigate sanctions, traders acknowledged short-term risk factors, including the distribution of 142,000 Bitcoin from the exchange's estate to creditors. Additionally, negative pressure on Bitcoin's price is stemming from the struggles of failed crypto lender Genesis, controlled by Digital Currency Group (DCG), seeking U.S. court approval to liquidate $1.38 billion in shares in the Grayscale Bitcoin Trust (GBTC).

Beyond the macroeconomic impact of the Fed's decision to maintain interest rates above 5.25%, there are potential risks to investor perception arising from Bitcoin's spot exchange-traded fund (ETF) flows. Some market participants, as suggested by Twitter trader @blockgraze, believe that Bitcoin's price has been sustained primarily by inflows from BlackRock's iShares Bitcoin Trust (IBIT) and Fidelity's Wise Origin Bitcoin (FBTC), while GBTC experienced the second-highest outflows in January among all ETFs covered by Morningstar—a net sale of $5.7 billion. The recent developments have nearly balanced out the positive inflows into the Bitcoin spot ETF, suggesting that the price of Bitcoin might continue to decline after reaching $43,000.

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