Bitcoin (BTC) Price Prediction: Will the Fed's Interest Rate Decision Send BTC to New Lows?

Bitcoin, the world's largest cryptocurrency, took a hit on Monday, dropping to $83,191 after a week of steady losses.

Bitcoin (BTC) dropped on Monday, extending a weekly decline as the market awaited the U.S. Federal Reserve’s upcoming interest rate decision.

Bitcoin fell 1.4% over the past 24 hours to $83,191 by 01:08 ET (05:08 GMT). The world’s largest cryptocurrency had been steadily losing ground since the beginning of the week, and was now down 3% for the week.

But with the market already on edge, all eyes were now on the Fed’s upcoming policy meeting.

Most analysts polled by economists expect the Fed to keep interest rates unchanged at the meeting, which is set for March 18-19. The U.S. central bank last raised interest rates by 25 basis points in January, after slowing the pace of hikes in December.

Since Bitcoin is often seen to be leading the broader crypto market, this decision could have a major bearing on prices.

Will the Fed Keep Rates Stable?

The Fed’s policy meeting will also cover February’s economic data. According to CME Group’s FedWatch tool, there is a 98% chance that the Fed will keep rates the same.

The U.S. central bank began raising interest rates in March 2022 to tame inflation, which had reached a 40-year high. These hikes were largely expected to continue until mid-2023. But the central bank surprised markets in January by slowing the pace of hikes and signaling that it could pivot later in the year.

The rate hikes had a major bearing on cryptocurrencies, as they signaled a shift in the central bank’s efforts to tighten the money supply.

How U.S. Dollar Is Affecting Bitcoin

The U.S. dollar is also playing a crucial role in Bitcoin’s price movements. The Dollar Currency Index (DXY), which measures the greenback against a basket of six major currencies, fell on Monday.

The dollar has been largely in retreat since mid-January, after reaching a 20-year high in January. This move came after the Fed signaled that it could keep interest rates higher for longer than markets had anticipated.

But the dollar pulled back sharply after minutes of the January Fed meeting showed that some members were keen on cutting interest rates by 50 basis points at the January meeting. Ultimately, the central bank opted for a 25-basis point hike.

A weaker dollar usually bodes well for riskier assets such as crypto. This is because a weaker dollar pushes investors toward alternative assets, including Bitcoin.

Global Liquidity and Fed’s Impact

Besides interest rates, global liquidity is another key factor that will be closely watched.

Central banks around the world, including the Fed, have been increasing the money supply to support their economies, especially after the onset of the Covid-19 pandemic.

Greater liquidity generally pushes asset prices- including stocks, real estate and crypto- higher.

If the Fed signals an end to its efforts to tighten the money supply, the crypto market could react positively.

Ethereum, Altcoins Lag

Among other major cryptocurrencies, Ethereum (ETH) came under renewed pressure on Monday, extending a weekly loss of 9% as it slid below the $1,900 level.

The second-largest cryptocurrency was last trading down 1%, and slid further from February highs of over $2,000. It was now trying to hold above the crucial $1,900 level and push back toward $2,000.

Another factor that could weigh on Ethereum was declining user activity. Data showed that daily active users of the Ethereum blockchain dropped to 293,000 on Sunday, sliding further from highs of over 700,000 earlier this year.

Other major altcoins also saw steep declines on Monday, with Solana (SOL), XRP, Cardano (ADA) and Tron (TRX) all clocking losses of over 4%. Most of these tokens also slid into the red for the week.

Several experts had warned that the crypto market was due for a correction after a stellar start to 2024, which saw Bitcoin rally over 70% from December lows.

But they also noted that a future Fed rate cut could bode well for a strong recovery in crypto.