Bitcoin Takes a Breather After Doji Candle in a Cautious Pre-Fed De-Risking

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What to know:

  • BTC trades lower, validating the indecision signaled by Tuesday’s Doji candle.
  • The Fed is expected to signal three rate cuts for 2025. Previously they had suggested four.

As a seasoned researcher with over two decades of experience in the financial markets, I’ve seen my fair share of bull and bear runs, and this current Bitcoin (BTC) rally is no exception. While the recent drop in BTC prices might seem like a cause for concern to some, it’s important to remember that consolidation periods are a normal part of any market cycle.

Bitcoin (BTC) appears to be pausing, facing selling pressure following the uncertain price movement on Tuesday, indicated by a Doji candle. This situation seems reminiscent of traders reducing their positions in preparation for the anticipated hawkish Federal Reserve interest rate decision scheduled for Wednesday.

The leading cryptocurrency by market value 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. That formed a ‘doji,’ a candlestick pattern that signifies indecision and potential bullish exhaustion when seen at record highs.

Given my analysis, I anticipated that Bitcoin’s downturn would lead to amplified losses across the altcoin market. Remarkably, significant cryptocurrencies like XRP, SOL, and ETH are reporting similar percentage losses as Bitcoin, mirroring its trend in the market.

At 14:00 ET, I’ll eagerly await the announcement from the Federal Reserve regarding their decision on interest rates, along with the dot plot, economic projections, and forecasts. Approximately thirty minutes afterwards, Fed Chair Jerome Powell will hold a press conference to elaborate on these decisions.

The general agreement suggests that the Federal Reserve will lower interest rates by a quarter of a percent, bringing them within the range of 4.25% to 4.5%. This move represents a decrease of 100 basis points since September. However, predictions indicate that the dot plot might show fewer planned rate reductions for the upcoming year.

As an analyst, I’m adjusting my forecast based on the potential for moderate growth in the near term, tempered by the likelihood of increased inflationary pressures. These pressures could arise from higher tariffs leading to price increases in various goods, and immigration controls potentially pushing up wages and costs, particularly in sectors like agriculture, construction, and hospitality. Consequently, I now anticipate that central bank will only implement three interest rate cuts in 2025, compared to their previous expectation of four.

Analysts predict that we should expect approximately 25 base pair reductions every quarter starting from 2025, with an ultimate interest rate of around 3.75% in the third quarter of that year. They also mentioned the potential for the Federal Reserve to adjust their forecasts for future economic expansion and inflation rates.

It seems that the widespread belief in aggressive monetary policies (hawkish expectations) might be causing the crypto market to reconsider its positions, as it searches for justification to correct following a rapid increase in Bitcoin’s price from $70,000 to over $100,000 within approximately two months.

It’s important 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 toward the upside.

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2024-12-18 09:33