Bitcoin plunged below the $43,000 level on Wednesday after Federal Reserve Chair Jerome Powell shattered hopes for a March rate cut. The largest cryptocurrency fell as low as $42,300, dragging down the overall crypto market.
- Federal Reserve Chair Jerome Powell dashed hopes of a rate cut in March, leading to a dip in bitcoin price below $43,000
- Bitcoin remains rangebound between $42,000 and $44,000 support and resistance levels without a clear direction currently
- Analysts say risk assets like bitcoin could face more downside if upcoming big tech earnings disappoint
- Technical analysis shows bitcoin seeing a pullback after rejection at $48,000, with next major support at $38,000 if selling resumes
- On-chain data shows increased selling by bitcoin miners during the recent price surge, but miner capitulation risks appear low currently
Bitcoin remains stuck in a tight range between $42,000 and $44,000 support and resistance, unable to break out convincingly in either direction over the past week. The lack of clear direction for bitcoin may persist until upcoming earnings from major tech bellwethers like Apple, Amazon and Meta, which could jolt crypto markets significantly if results either substantially beat or miss expectations.
Powell Comments Catch Market Off Guard
Markets were caught flatfooted when Powell stated bluntly that the Fed will likely not have enough confidence in inflation coming down by March to warrant a rate cut. Prior to the comments, futures markets had priced in a 65% probability of a rate cut at the March FOMC meeting.
Powell gives a hard shove *against* a March cut:
"I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to [cut], but that's to be seen."
— Nick Timiraos (@NickTimiraos) January 31, 2024
His remarks sent shockwaves through risk assets like tech stocks and crypto, with the tech-heavy Nasdaq plunging 2.2% while Bitcoin fell in sympathy. The swift market reaction signals traders were far too optimistic about the Fed pause being imminent.
Some analysts still believe the Fed’s tightening cycle is nearing its end, but the central bank first wants irrefutable proof inflation pressures are abating before changing course. This ideological stance shows the Fed’s priority is still inflation-fighting, not market stability or stimulus.
Technical Analysis Flags Downside Risks
According to technical analysis, Bitcoin could see a renewed bearish breakdown towards the $38,000 support zone if the current pullback completes. The largest crypto recently faced stiff rejection at $48,000 resistance and has retraced around 40% of the gains from its bounce off the critical $39,000 support level.
The $43,000 to $45,000 zone is expected to offer near-term resistance and cap upside. If this area halts Bitcoin’s relief rally, the probability of continued selling pressure rises, especially with fundamentals turning bearish post-Fed.
Both the daily and 4-hour time frame charts indicate potential for a bearish continuation pattern to trigger after the latest failed breakout attempt. Bitcoin may need a reset with a capitulative plunge in order to establish a meaningful bottom.
Miners Increasing Selling Activity a Warning Sign
On-chain data also offers some evidence of building selling pressure in crypto markets. An indicator tracking miner outflows shows increased frequency of coins moving off exchanges by miners during Bitcoin’s recent surge past $40,000.
This suggests miners are eager to lock in profits on rallies, expressing less confidence in extended upside. The willingness to realize gains signals miners have sufficient reserves and don’t depend heavily on extraction revenues, empowering them to stomach lower bitcoin prices for longer.
While miner capitulation risks appear low, persistent selling by miners could lead to gradual bitcoin oversupply crimping prices over the mid-term. The behavior shows miners expect limited price appreciation in the short-term and favor securing predictable returns.
Macro Trends Still Weigh on Bitcoin Outlook
The Fed’s unwavering hawkish rhetoric exemplifies the challenging macroeconomic environment Bitcoin and crypto markets continue to battle. Even with inflation showing declines from 40-year highs, the central bank refuses to entertain thoughts of pausing rate hikes let alone reversing course.
Surging technology layoffs and cost cutting measures point to growing recession risks as well. Until conviction grows around the Fed eventually switching to rate cuts, bitcoin and risk assets face inhospitable monetary conditions.
The combination of stubborn inflation and a hawkish Fed threaten to push the economy into contraction – hardly fertile ground for speculative assets. For bitcoin to reassert its bullish narrative, clear evidence of stable or declining prices and dovish central bank pivots may need to emerge first.
In the meantime, analysts say periodic relief rallies in bitcoin should be sold into and warn the bottom is not yet in for this bear market. A drop towards the $30,000 zone where Bitcoin carved out a macro bottom last year remains possible. From there, markets can reassess the outlook.