Bitcoin Sets New Record Above $106K, Faces Pullback Amid Hawkish Fed Signals.

Bitcoin Peaks at $106K Before Pullback Amid Expectations of Hawkish Fed Rate Cut

Bitcoin (BTC) briefly surpassed $106,000 during early trading hours in Asia, reaching new all-time highs before retreating to $104,500. This dip comes as market participants anticipate the U.S. Federal Reserve’s (Fed) upcoming rate decision, with a potential hawkish tone affecting investor sentiment.

The Fed is widely expected to cut its key interest rate by 25 basis points, lowering the benchmark range to 4.25%-4.5%, continuing the easing trend that began earlier this year. However, there are growing concerns that the accompanying statement will hint at fewer rate cuts next year, which could dampen the bullish outlook for risk assets like Bitcoin.

Marc Chandler, Chief Market Strategist at Bannockburn Global Forex, noted the possibility of a “hawkish” rate cut: “The Fed may reduce rates but temper expectations for future cuts, recognizing a stronger-than-expected economy and ongoing inflation pressures.” If this occurs, it could lead to an uptick in Treasury yields and the U.S. dollar, making it more challenging for Bitcoin and other risk assets to maintain their upward momentum.

The Fed’s decision, alongside the release of its updated economic projections and dot plot, will be announced on Dec. 18, with a press conference from Chairman Jerome Powell to follow. The market is particularly focused on any changes to the Fed’s outlook for 2024, which could influence future expectations of inflation and monetary policy.

Despite these concerns, Bitcoin’s long-term outlook remains favorable. A supportive macroeconomic environment, including easing measures in China and increasing global liquidity, continues to bolster investor confidence in the digital asset. Additionally, positive regulatory signals from President-elect Trump have helped maintain optimism in the cryptocurrency market.

“The hawkish Fed cut may cause some short-term volatility, but the broader global liquidity cycle remains supportive for Bitcoin,” said analysts at LondonCryptoClub. “With a strong seasonal outlook for BTC, the pullback may be temporary.”

Investors are also awaiting the latest core PCE data, the Fed’s preferred inflation gauge, which will provide more clarity on inflation trends and their potential impact on monetary policy moving into 2024.

While Bitcoin’s price action is currently volatile, the underlying sentiment remains bullish, with expectations that global liquidity and a favorable macro backdrop will continue to support BTC’s growth in the coming months.