NOIDA (CoinChapter.com) — The latest FOMC minutes and revisions by influential financial institutions like Goldman Sachs have painted a clearer picture of the Federal Reserve’s monetary policy. Earlier, markets had anticipated interest rate cuts potentially beginning as early as March 2024, but Goldman Sachs recently revised its prediction on the Fed rate cut, pushing the deadline to June.
The expectation shift stems from key factors, such as the FOMC minutes highlighting lingering concerns about inflation.
While prices have slowed, they remain stubbornly above the Fed’s 2% target. This suggests the Fed may see the need to maintain a restrictive policy stance for longer. Furthermore, the strong jobs market poses a double-edged sword for the Fed.
Low unemployment is beneficial for workers, but it raises wage growth concerns, potentially fueling further inflation. Additionally, the Fed stresses it will make decisions based on incoming economic data.
“I would like to have greater confidence that inflation is converging to 2% before beginning to cut the policy rate“
Lisa Cook, Fed Governor said in the FOMC minutes.
Recent strong reports on jobs and consumer spending may indicate that the economy is more resilient than expected and can withstand higher rates.
Moreover, JP Morgan, Deutsche Bank, and Morgan Stanley broadly align with Goldman Sachs, forecasting the first Fed rate cut to occur around mid-2024 (June or later). UBS also revised its rate cut prediction to June from its earlier target of March 2024.
No Fed Rate Cut Till June: What Might Happen To Bitcoin?
For several reasons, the potential delay in Fed rate cuts creates a challenging landscape for Bitcoin and other cryptocurrencies. During higher interest rates, investors often shift focus from riskier assets like Bitcoin to traditional safe havens like government bonds.
This could lead to reduced capital allocation to the cryptocurrency market. In addition, high interest rates encourage saving rather than speculative investments.
A delayed rate cut signals a potentially prolonged period of tighter liquidity conditions, which could create a headwind for capital flows into cryptocurrencies like Bitcoin.
Lastly, a strong US dollar, often bolstered by higher interest rates, can make Bitcoin less attractive to foreign investors who need to convert their local currency to USD to purchase it.
On the other hand, some analysts point out that Bitcoin could retain its appeal as an inflation hedge. For instance, Matrixport released a report stating that Bitcoin price could rise to $63,000 by March 2024, riding on, among other things, expectations of a Fed rate cut after the next FOMC meeting.
If persistent inflation continues to erode the value of fiat currencies, investors may still turn to Bitcoin as a potential store of value. Additionally, long-term investors remain focused on Bitcoin’s adoption potential, which might mitigate the short-term impact of interest rate policies.
Bitcoin Whales Hold Steady As Fishes Scamper
Meanwhile, Bitcoin whale wallets (holders with more than 1,000 BTC) saw a spike recently, largely due to the launch of spot Bitcoin ETFs. Interestingly, the rise in whale addresses did not diminish post release of the FOMC meeting minutes.
Despite a potential delay in Fed rate cuts, Bitcoin whale wallets (green wave) rose. On the other hand, shark wallets, or users with Bitcoin holdings between 100-1,000 BTC tokens, continued to decline, with a 30-day change of -261 wallets on Feb. 22.
Similarly, Fish wallets, or retail traders with less than 100 BTC, also dropped, indicating a selling mentality among smaller Bitcoin holders. However, BTC ETFs would likely absorb the selling pressure, negating the bearish impact of retail sellers.
