Bitcoin price may see a harsh reversal after Fed decision

Bitcoin price rose to a record high of $108,000 on December 17, continuing the bull run that started in 2023.

Bitcoin (BTC) is up almost 150% this year, driven by rising demand and declining supply growth. The easing of high interest rates by the Federal Reserve and other central banks also contributed to this upward momentum.

Data from SoSoValue shows that spot Bitcoin ETFs have accumulated over $36 billion in assets, bringing their aggregate total to over $120 billion. This growth shows that Bitcoin is increasingly competing with gold for investors’ attention.

People ask me this. The answer is YES, if you include all bitcoin ETFs (spot, futures, leveraged) there is $130 billion for gold ETFs and $128 billion for gold ETFs. However, if you just look at the spot, you will see that BTC is at $120 billion and gold is at $125 billion. Either way, it’s unreal, we’d even argue they were that close at 11pm. https://t.co/hq8QAc14Xa

— Eric Balchunas (@EricBalchunas) December 17, 2024

Growth in Bitcoin supply has not been strong as mining difficulty has increased. Data from CoinGlass shows that the amount of Bitcoin remaining on exchanges continues to decline this year.

These supply and demand dynamics will likely push Bitcoin prices higher in the long run. This demand will likely come from governments and corporations that have seen Microstrategy grow from a small company into a $90 billion firm.

The next major catalyst that could have an impact on Bitcoin is the Federal Reserve’s decision on Wednesday. Economists expect the bank to cut interest rates by 0.25%, bringing year-to-date cuts to 1%.

Bitcoin and other risky assets are doing well as the Fed cuts rates as investors typically move out of low-yielding money market funds.

Therefore, the Fed may prevent Bitcoin price growth by using a hawkish tone due to sticky inflation. His main concern is that Donald Trump’s policies of deportations, tax cuts and tariffs will increase inflation.

Data released last week showed inflation remains a major challenge, with the Consumer Price Index rising to 2.7%. Core CPI, which excludes volatile food and energy prices, remained at 2.2%. Therefore, although the Fed is likely to cut interest rates this week, a hawkish outlook may emerge.

Bitcoin price analysis BTC price chart | Source: crypto.news

The daily chart shows that BTC has been maintaining a strong uptrend for the past few weeks. The price remains above all major moving averages, signaling that the bulls are still in control. Additionally, BTC formed a cup and handle formation, indicating further gains.

But the chart also reveals a rising wedge formation, which is a common reversal signal. The MACD and the Relative Strength Index have both formed bearish divergence patterns.

As a result, there is a potential short pullback to $103,000 following the Fed’s interest rate decision on Wednesday.