Bitcoin pauses as crypto traders await Fed decision. Prepare for volatility.

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Bitcoin rose to start the year, but there are reasons to believe the gains may be unsustainable. The time of dreams

Bitcoin and other cryptocurrencies were on pause Wednesday as traders awaited a key interest rate decision from the Federal Reserve. After the best January for Bitcoin in a decade, bad news from the central bank has the potential to start February on a bad note.

The price of Bitcoin has risen less than 1% in the past 24 hours, hovering around $23,000. The biggest digital asset soared to start the year, gaining 40% as cryptos benefited from improved investor risk appetite. As Bitcoin remains just a third off its late 2021 high, traders are growing optimistic that a brutal bear market bottom has already been reached following FTX’s shock November bankruptcy. and that cryptos are about to go up.

Crypto fundamentals take a back seat here and the main driver is the overall appetite for risky assets, said Edward Moya, an analyst at brokerage Oanda. Bitcoin appears to have massive resistance at the $24,000 level, so if the rally stalls after the Fed and tech mega-cap fireworks, consolidation towards $20,000 could occur.

Indeed, Wednesday’s earnings from tech giant Meta Platforms (ticker: META) and peers Apple (AAPL), Alphabet (GOOGL) and Amazon.com (AMZN) on Thursday will hit sentiment for the tech, likely fleeing to cryptos.

But the spotlight is on the Fed. Decades-high inflation and rising interest rates have been a major headwind for Bitcoin over the past year as cryptos become more correlated to equities amid an unfavorable macroeconomic backdrop for risk-sensitive assets. Investors hope the worst is over.

The Fed is expected to raise interest rates by a quarter of a percentage point on Wednesday. This is another rate hike, but a marked slowdown in the pace of tightening of financial conditions after a series of much larger hikes last year.

Basically, investors want to see Fed Chairman Jerome Powell telegraph a more dovish policy shift to maintain momentum from the recent rally that carried the Dow Jones Industrial Average and S&P 500 as Bitcoinhigher.

If Powell looks aggressive, expect a sell-off. And it could be painful.

The recent crypto rally largely appears to be built on sand, with stunning jumps in Bitcoin fueled by low liquidity and technical factors, including a short squeeze pushing prices higher and not organic demand. These same trends that helped push prices up could accelerate a sell-off. If the Fed fails to meet investors’ hopes, Bitcoin could find itself in a downward spiral.

Beyond Bitcoin, most other digital assets were on hold. Ether, the second largest crypto, was less than 1% higher at $1,575. Smaller tokens or altcoins were a bit stronger, with Cardano 2% in the green and Polygon up 1%. Memecoins were stabilizing after a recent independent rally, with Dogecoin and Shiba Inu around 1% lower.

Write to Jack Denton at [email protected]

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