The leading cryptocurrency by market value, Bitcoin (BTC), is experiencing selling pressure after Tuesday’s indecisive price action marked by a Doji candle. This development seems to be a classic case of traders de-risking in anticipation of an expected hawkish Fed rate cut later on Wednesday.
Tuesday’s Price Action: A Record High and a Flat Close
On Tuesday, Bitcoin traded around $103,750, marking a 2% drop for the day, according to TradingView and CoinDesk data. Prices had surged to a record high of over $108,000 on Tuesday but failed to maintain those gains, ending the UTC day flat. This flat close formed a ‘doji,’ a candlestick pattern that signifies indecision and potential bullish exhaustion when seen at record highs.
Fed Rate Cut Decision: A Hawkish Expectation
The Federal Reserve (Fed) will announce its rate decision, interest rate dot plot, projections, and economic forecasts at 14:00 ET. Fed Chair Jerome Powell’s press conference will be held a half hour later. The consensus is that the Fed will cut rates by 25 basis points to the 4.25% to 4.5% range, marking a total easing of 100 basis points since September.
Hawkish Expectations: Fewer Rate Cuts in 2025
But, the dot plot is expected to show fewer rate cuts for next year. Analysts at ING note that "the risk of slightly stronger near-term growth with the threat of higher inflation – tariffs putting up prices of goods and immigration controls potentially lifting wages and costs in the likes of agriculture, construction, and hospitality sectors – means that we expect them to signal only three rate cuts in 2025. Previously, they had suggested four."
Rate Cut Projections for 2025: A Shift Towards a More Neutral Stance
The analysts added, "We look for 25bp of cuts per quarter in 2025 with a terminal rate of around 3.75% in the third quarter." They also noted the possibility of the Fed revising their projections for economic growth and inflation.
Hawkish Expectations Fuel De-Risking in Crypto Market
These so-called hawkish expectations are likely fueling the de-risking in the crypto market that is looking for reasons to correct, having seen prices for BTC soar from $70,000 to over $100,000 in less than two months.
The Path of Least Resistance: Risk Assets Tilted Towards the Upside
It’s essential to note that fewer rate cuts do not necessarily mean tightening; easing is still on the table. This suggests that the path of least resistance for risk assets remains tilted towards the upside.
Altcoins Suffer Larger Losses
As expected, Bitcoin’s decline has resulted in even larger losses for alternative cryptocurrencies, but some majors, such as XRP, SOL, and ETH, are experiencing losses comparable to BTC.
Conclusion: A Breather Before a Potential Upswing?
The current market dynamics suggest that traders are de-risking in anticipation of an expected hawkish Fed rate cut. While this may be a classic case of traders taking profits after a significant surge in prices, it’s also possible that the path of least resistance for risk assets remains tilted towards the upside. Only time will tell if this is just a breather before a potential upswing or a more significant correction.
Key Takeaways:
- Bitcoin (BTC) is experiencing selling pressure after Tuesday’s indecisive price action marked by a Doji candle.
- The Federal Reserve (Fed) will announce its rate decision, interest rate dot plot, projections, and economic forecasts at 14:00 ET.
- Hawkish expectations suggest that the Fed may signal fewer rate cuts for next year.
- Rate cut projections for 2025 indicate a shift towards a more neutral stance.
- The path of least resistance for risk assets remains tilted towards the upside.
- Altcoins are suffering larger losses compared to Bitcoin.
