Federal Reserve
Federal Reserve System Fed of USA chairman press conference concept. Tribune with symbol and flag of FRS and United States. 3d illustration

The Bitcoin price dropped by more than $1,000 on Wednesday evening after the hawkish Federal Reserve interest rate decision. The BTC is trading at $38,845, which is slightly below the important resistance of $40,000. It has a market capitalization of more than $726 billion.

FOMC decision

The Fed concluded its two-day monetary policy meeting and surprised investors. It left interest rate unchanged at the ultralow rate of between 0% and 0.25%. It also left its massive quantitative easing policy intact, meaning that it will continue buying bonds and mortgage-backed securities worth $120 billion per month. 

The Fed surprised investors because of its overall forward guidance. Unlike in the past meetings, the Fed said that the economy was having a strong recovery and that it will likely start hiking interest rates in 2023. Some policymakers said that they expect to hike rates in the final quarter of 2022. The bank also said that it had started to deliberate on quantitative easing (QE). Some analysts expect that more talk of taper will come out in the next few meetings.

Regular readers know that I believe that the Fed has been the biggest catalyst for Bitcoin price. In a previous article, I wrote in detail what to expect when the Fed abandons its easy-money policy. I also wrote another article arguing that the Fed will have a difficult time tightening.

Bitcoin after the Fed

So, what has changed? In my view, I believe that the hawkish Fed statement will be the catalyst that pushes the BTC price higher. For one, in most cases, investors tend to overreact immediately when major news happens. 

Let me explain. In the past few months, Bitcoin and other cryptocurrencies’ prices retreated mostly because of expectations that the Fed will start tightening. Furthermore, other central banks like the Bank of Canada, Bank of England, and Reserve Bank of New Zealand (RBNZ) also started providing hints of more tightening. Further, Janet Yellen, the former Fed chair made the case of gradual tightening.

Therefore, Bitcoin price weakened amid this uncertainty. Now that the Fed has hinted that tightening is coming, I suspect that this fear will start easing, which will push prices higher. Remember, the common phrase, buy the rumor, sell the news.

There are other reasons why BTC will likely keep rising. First, because of the forward guidance, there is a possibility that there will be no taper tantrums this time like we saw a few years ago. Second, any tightening will be gradual in nature. As such, investors will still find better returns in risky assets than in bonds. Finally, the Fed might struggle to tighten, like it happened in the previous phase. As you recall, the Fed made four rate hikes in 2018 followed by two cuts in 2019.

Bitcoin price prediction

Bitcoin price
Bitcoin price chart

On the four-hour chart, we see that the BTC price has faced a strong resistance at the $40,000 mark. At the same time, it seems to have formed an inverse head and shoulders pattern, which is usually a bullish signal. It has also moved to the 25-day and 15-day exponential moving averages (EMA) while its volatility has dropped. Therefore, in my view, the Fed will be the new catalyst for Bitcoin and that the price will soon soar. This will be confirmed if it manages to move above the resistance at $40,000.

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