Bitcoin’s (BTC) price has remained steady in the $34,000 range, with positive on-chain signals surfacing in anticipation of the Federal Open Market Committee (FOMC) meeting.
The US Federal Reserve is anticipated to declare another temporary interest rate pause during the upcoming FOMC meeting on November 1. While the market appears to have already factored in this news, historical data suggests it could have significant long-term implications for Bitcoin prices.
The US economy is poised to enter its lengthiest phase of interest rate restrictions since 2022, stemming from a series of challenges, including a global pandemic, geopolitical tensions, and supply-chain disruptions. These factors led to a “technical recession” as consumers grappled with double-digit inflation.
In response to the persistent inflation, the Federal Reserve gradually raised the funds rate by 525 basis points over a 16-month period that began in March 2022. However, after reaching a 22-year high of 5.25%-5.5% in July, the Fed announced a pause at its September 20 meeting.
The Federal Open Market Committee (FOMC) serves as the entity in charge of guiding monetary policy by means of open market operations. Comprising 12 members, this committee convenes eight times annually to deliberate on crucial economic matters, which encompass the determination of interest rates.
What Effect Does the Fed Rate Have on Bitcoin Price?
Similar to other risk-on assets, Bitcoin prices are influenced by Federal Reserve rate announcements, depending on the direction of the change. Generally, when there is high inflation, governments tend to raise interest rates to control the surplus money supply, a trend observed between March 2022 and September 2023.
As a result, the increased yield on government bonds inadvertently diminishes investors’ interest in risk-on assets like stocks and cryptocurrencies. This phenomenon became evident as the price of BTC dropped by 66%, declining from $47,000 in March 2022 to December 2022, aligning with the Federal Reserve’s implementation of 80% of the 525 basis point rate hike.
Conversely, when inflation recedes, it is anticipated that the Federal Reserve will either retain a neutral stance or reduce the Fund rate. This approach is designed to prevent long-term economic stagnation.
The consequent expansion of the money supply inadvertently encourages investors to allocate their capital into risk assets like Bitcoin.
Nonetheless, in September, when announcing the rate pause, Fed Chair Jerome Powell emphasized that inflation remains excessively high. Consequently, strategic investors expect that the US economy is still several months away from potential rate reductions.
The most recent data from the Consumer Price Index and the Non-Farm Payroll reports have both surpassed the market’s consensus forecasts. This clear indication of economic growth surpassing expectations, along with the rebound in the labor market, suggests that the Federal Reserve is likely to declare another rate pause on November 1.
Referencing the historical table depicting the trend in Federal Reserve rates, a second consecutive rate pause would lead the US economy into its lengthiest phase of rate restrictions since February 2022. This development could have a sustained favorable influence on the prices of Bitcoin and other cryptocurrency assets.
Corporate entities are in a race to acquire Bitcoin in anticipation of preempting the forthcoming Federal Reserve rate reductions.
Taking into account that the previous rate pause resulted in a 30% increase in BTC price, recent on-chain data indicates that corporate entities and high-net-worth investors are expecting further gains.
According to Santiment’s data, Bitcoin has witnessed a consistent surge in demand from significant institutional investors following the Federal Reserve’s rate pause announcement on September 20. This trend of large investors, often referred to as whales, has gained even more momentum over the past two weeks.
The chart below demonstrates that Bitcoin has recorded no less than 7,000 confirmed whale transactions on each of the past 10 days, dating back to October 22.
In fact, the 17,520 substantial transactions observed on October 24 marked the highest level since Blackrock unveiled its application for a Spot BTC ETF back in June 2023.
The Whale Transaction Count metric represents a daily summation of unique transactions surpassing the $100,000 threshold. Logically, a surge in whale transactions serves as a bullish signal, indicating heightened interest from corporate entities and high-net-worth investors.
In conclusion, analyzing these historical data patterns suggests that, upon the official announcement of the anticipated rate pause, Bitcoin’s price is likely to embark on another ascent toward $40,000.
For further information, check out our article on the 9 Best Crypto Demo Accounts for Trading.
Predicting the Price of Bitcoin (BTC): Heading Towards $40,000
With 79% of Bitcoin holders currently holding profitable positions, the prevailing sentiment in the ecosystem is overwhelmingly positive. Should the anticipated Federal Reserve rate pause announcement amplify the bullish momentum, it is likely that the price of BTC will reattempt the $40,000 mark.
Supporting this projection is the Global In/Out of the Money data, which provides an on-chain representation of the historical purchasing patterns of current BTC holders. This data indicates that the $35,100 price level represents the most significant obstacle to overcome on the path to $40,000.
As illustrated below, 3.16 million addresses have acquired 1.17 million BTC at a minimum price of $35,137. If these holders opt to close their positions prematurely, it could trigger an immediate retracement in the Bitcoin price.
However, should the Federal Reserve rate pause serve as an incentive for corporate entities to continue their buying spree, it is plausible that the Bitcoin price rally will indeed reach the predicted $40,000 mark.
On the flip side, the bearish scenario could disprove this forecast if the BTC price falls below the $30,000 threshold. However, recent observations from the past week suggest that the initial support level around $33,500 presents a formidable barrier.
The chart displayed above reveals that 1.06 million addresses currently possess 513,580 BTC purchased at an average price of $33,650. Should these holders continue to “HODL” (hold on for dear life), they are likely to impede any significant reversal in the Bitcoin price.