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HomeMarketThe Fed Could Drive Bitcoin to $18,000 or Unleash More Selling Pressure

The Fed Could Drive Bitcoin to $18,000 or Unleash More Selling Pressure

The Federal Reserve is expected to raise interest rates when it meets next week. Rising rates are a macro headwind to the price of Bitcoin.

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Dreamstime

Cryptocurrency prices including
Bitcoin
drifted slightly higher Saturday ahead of an eventful macro week for markets. Highly anticipated inflation data and a likely increase in interest rates from the Federal Reserve will be the main events.

Bitcoin was changing hands around $17,200 on Saturday, up some 0.5% from a day earlier, according to CoinDesk. The price of the cryptocurrency fell three of the past five days while stocks also had a difficult week.
Ether,
the second-largest cryptocurrency by market value, was up about 1.2% on Saturday to $1,275.

Bitcoin has been rocked over the past month by the bankruptcy of the FTX crypto exchange on Nov. 11. The price had declined about 20% since then, and is off some 75% from its record high in the fall of 2021. 

Data on U.S. consumer prices for November will be released Tuesday by the Bureau of Labor Statistics. Economists, on average, forecast a print well above 6% — slower than prior months but still uncomfortably high.

It should keep the Federal Reserve on its rate-hike trajectory. Markets expect an increase of 0.5 percentage point in the fed-funds rate, to a target range of 4.25% to 4.5%. 

Rising interest rates are a macro headwind to the price of Bitcoin and most other cryptocurrencies. Like gold, they don’t produce any income. When interest rates rise and higher yields are on offer elsewhere, Bitcoin becomes relatively less attractive.

“Bitcoin seems stuck around the $17,000 area and that could continue until next week’s FOMC decision,” wrote Edward Moya, senior market analyst at Oanda, on Friday. “If Wall Street is confident that the Fed will be done hiking after the February rate rise and nothing new breaks in crypto, you could see Bitcoin make a run for the $18,000 level.”

On the contrary, if Fed officials send the message that rates may rise further in 2023 then there could be selling pressure on Bitcoin next week. But after the crypto’s post-FTX declines, a lot of the near-term bad news may already be priced in. Futures markets aren’t implying anything dramatic from Bitcoin on the horizon.

“Interestingly, we can see below that implied volatilities have fallen off a cliff after the dramatic spike in early November following the FTX-induced chaos,” wrote Sean Farrell, head of digital asset strategy at Fundstrat, on Friday. “Weekly, 1-month, 3-month, and 6-month implied volatilities are now at approximately the same levels as they were leading up to the FTX implosion.”

Also next week, FTX founder Sam Bankman-Fried is set to testify before members of Congress. Further out, Sen. Ed Markey of Massachusetts has proposed legislation targeting emissions from cryptocurrency mining.

Write to Nicholas Jasinski at nicholas.jasinski@barrons.com

Credit: marketwatch.com

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