In the world of cryptocurrency, this week marked a slip in the prices of digital assets as revelation of the Feds hawkish outlook stemming from rising concerns over inflation hit the market. As a result, Bitcoin along with other cryptocurrencies in the broader market experienced sizeable lows on Jan 9, leading to a 4% fall in the total digital asset sector over a span of 24 hours, plummeting to $3.37 trillion.
The Fed’s Deterrence Against Increasing Inflation Risks
Insights from a QCP Capital researcher suggested that macroeconomic headwinds were influencing the pricing of cryptocurrencies, echoing the sentiments following the minutes from a Federal Reserve meeting that was concluded late on the evening of Jan. 8. The central bank, led by Fed Governor Christopher J. Waller, announced its intent to stagger subsequent rate cuts in an attempt to curb the escalating risks associated with rising inflation.
According to the researcher at
QCP Capital, “The Fed indicated that they will slow down the pace of rate cuts given that the risks of inflation have increased. Yesterday’s ADP employment survey also added to macro uncertainty, showing a slowdown in both private sector hiring and wage gains. This heavily contrasted with Tuesday’s JOLTS jobs opening, which painted a stronger labour market.”
Bitcoin Market Response
Despite a comeback which inflated its value up to $95,200, Bitcoin could not maintain its stability and slid below the key support level of $92,500. The market experts at QCP suggested that Bitcoin’s value may consolidate between $92,000 and $95,000 ahead of its next rally point. The downside of this projection suggests that if Bitcoin is unable to maintain its value above $92,000, it may potentially drop to around the $90,000 level.
U.S Government Selling Pressure
In addition to regular market pressures, Bitcoin could potentially face selling pressure from the U.S. government. With the Department of Justice reportedly giving a green light to the sale of $6.5 billion worth of Bitcoin seized from Silk Road, before President Trump’s inauguration, the crypto market is on edge. This decision has caused a stir among crypto-enthusiasts, with many speculating the timing of the announcement was influenced by Trump’s statements promising to put a halt to all Bitcoin sales by the government while simultaneously establishing a national reserve.
Short-term Impact Due To Institutional Demand
Nevertheless, experts predict that the impact of such a sale, if it were to happen, might be short-lived. Strengthening this view, they cite the increasing demand from institutional investors like MicroStrategy and the surge of Bitcoin exchange-traded funds on Wall Street as potential buffs to the Bitcoin market. In fact, Fidelity, the trillion-dollar wealth manager, believes that the upcoming years will see a rise in Bitcoin purchases by various countries, companies, and government entities. By 2025, the rise in interest towards this digital asset is expected to facilitate a surge in market prices.
