Bitcoin traders are in a bit of a tough spot despite the fact the asset class has performed well during the last month. But most of the gains for the crypto king have been mainly due to the fact that we had a major shakeup in terms of one of the most important fundamentals that impacts the price of bitcoin, and that is the Fed’s monetary policy. The Fed brought a jumbo interest rate cut last month, and that made bitcoin recover its losses. Now that the jumbo rate cut is over, the question for traders is what is next for Bitcoin, as October is one of the months that usually brings an enormous amount of volatility.
Background
This year, bitcoin prices have seen a decent rally; we saw a new high for the cyrpto king, but then we also saw some serious correction that took the price well away from its all-time high. To put things into perspective, the price of the crypto is up over 51% year-to-date (YTD), and on a year-over-year scale, the price is up over 132%. These jaw-dropping gains are not just eye candy; in fact, the price of bitcoin has made serious gains in September, rising over 9.94%—despite peaking above 12% just a few days ago. The three-month performance of the shining metal sits at a robust 2.84%.
Why the Price Has Swollen
One major reason for the significant price increase in the crypto king is the monetary policy of the US Federal Reserve. The Federal Reserve adopted an ultra-hawkish policy in the aftermath of COVID, and that led to serious strength in the dollar index. Bitcoin traders have been of the mind frame that a correction is going to take place in the dollar index when the Fed will begin the process of cutting the interest rates. Through out this year, it has been anticipated that the Fed will cut the interest rates, but the pace of cutting the interest rates has been somewhat subdued.
The fed began the process of cutting the interest rates as of last month, and they announced the big jumo interest rate cut. This unexpected move by the Fed caused a significant drop in the dollar index, much to the surprise of Bitcoin traders. Many had anticipated a gradual decrease in interest rates, but the sudden and substantial cut caught the market off guard.
The Fed’s action has been widely dubbed a desperate move because one of the critical fundamentals started to head in the wrong direction, forcing the Fed into a corner that many thought they would avoid. I’m primarily referring to the US NFP—the US labour market. However, it’s not entirely accurate to say the Fed acted solely under pressure; inflation data produced readings that allowed the Fed to take such bold action. In essence, inflation moved significantly in a positive direction, while employment readings put the Fed in a tight spot.
As a result, Bitcoin traders are now reevaluating their strategies and anticipating further fluctuations in the dollar index in the coming months. The volatility in the currency markets continues to impact various asset classes, creating uncertainty for traders around the globe.
Additionally, the increasing adoption of cryptocurrencies by institutional investors and mainstream financial institutions has also contributed to the surge in bitcoin’s price. These factors combined have created a perfect storm for the cryptocurrency, propelling it to new heights.
What Could Happen Now?
With solid yearly gains for the crypto king, traders are now wondering how much more weakness we could see this month as the Fed may cut the interest rates again. Yesterday, the Fed chairman, Jeorme Powell, surprised the markets with his comments when he poured cold water on expectations that market players should expect the Fed to cut the interest rates by another 50 basis points by default, as there is no such thing. He made it clear that everything is very data-dependent.
Looking at the latest economic indicators, such as consumer spending and consumer confidence, it appears that the US economy is still under significant stress. This implies that the risks of a hard landing persist, a situation that the Federal Reserve aims to prevent at all costs.
The US NFP data, the most important economic reading for this week, will be crucial for gold and bitcoin traders not only this week but also in setting the tone for the rest of the month. This number will force the Fed to reconsider its monetary policy approach and how aggressively they need to cut interest rates.
Some market players believe that the Fed’s next interest rate cut, dependent on US NFP data, is likely to be another big one. Yes, “jumbo” is the term that’s etched on my trading desk. If the Fed doesn’t deliver on expectations, we could see some steam escaping from the bitcoin price. However, if the Fed meets or exceeds expectations, we can anticipate a significant surge in the price of the crypto.
Bitcoin Chart by Exness
The Bottom Line
The bottom line now for traders is to stay highly tuned to any news or updates from the Fed in order to make informed decisions. Keeping a close eye on the US NFP data and any announcements from the Fed will be crucial in determining how the bitcoin price will react. Traders will need to be nimble and ready to act quickly based on the latest information. The market is likely to be volatile in the coming days, so it’s important to be well-informed and prepared for any potential shifts in the price of bitcoin.
