Impact of Powell’s Rate Outlook on Cryptocurrency Valuations: Bitcoin and Ethereum Plummet
Federal Reserve Chairman Jerome Powell’s recent remarks regarding interest rates have led to declines in Bitcoin and Ethereum values, triggering selloffs in risk assets. Institutional investments in crypto ETFs have surged, indicating a shift in market sentiment, while technical indicators suggest potential reversals for both cryptocurrencies.
The recent testimony by Federal Reserve Chairman Jerome Powell has reverberated through financial markets, notably impacting cryptocurrency valuations. During his appearance at the House Banking Committee on February 11, Powell maintained a cautious approach towards interest rate cuts, instilling a sense of caution among investors. This led to broader selloffs in risk assets, including Bitcoin (BTC) and Ethereum (ETH), as investor confidence wavered.
While the Fed’s policy is less restrictive and economic conditions appear strong, Powell cautioned against hasty adjustments to monetary policy. He warned that excessive cuts could thwart progress on inflation, while slow adjustments might weaken economic activity and job growth. Following his remarks, Bitcoin experienced a brief decline below $96,000, reflecting a 2.35% decrease, while Ethereum fell below the $2,600 mark amidst an already established downward trend.
The wider cryptocurrency market followed suit, with altcoins exhibiting similar weaknesses alongside Bitcoin and Ethereum. The immediate response to Powell’s speech is visible in the rise of short- and long-term Treasury bond yields, making the allure of interest-yielding assets more compelling compared to risk-sensitive cryptocurrencies.
As of now, the likelihood of interest rates remaining unchanged during the Federal Reserve’s upcoming March 19 meeting is 95.50%, a notable increase from 75.50% last month, as indicated by the CME FedWatch tool. Additionally, market analysts do not expect a rate cut to be priced in until September 2025, with less than two cuts anticipated throughout the year.
In a sign of significant institutional investment, Goldman Sachs has ramped up its holdings in Ethereum ETFs by 2,000% during the fourth quarter of 2024, increasing its exposure from $22 million to $476 million via BlackRock’s iShares Ethereum Trust and the Fidelity Ethereum Fund. Concurrently, there was also a 114% rise in its Bitcoin ETF holdings, now totaling $1.52 billion, through similar channels, marking a notable shift in institutional sentiment towards cryptocurrencies.
Despite the current downturn, technical indicators suggest potential bullish reversals for both Bitcoin and Ethereum. Presently, Bitcoin is testing a critical support level characterized by two ascending trendlines and the lower boundary of a falling wedge pattern, indicating possible upward movement if it breaks above resistance at $107,796. Bitcoin’s RSI at 43.02 suggests a decrease in bearish momentum, further supporting this outlook.
Ethereum remains near essential ascending trendline support, aligning with Fibonacci retracement levels. Although Ethereum has recently produced a death cross, where the 50-day EMA dips below the 200-day EMA, such phenomena often lag in indicating market direction. Its RSI is also nearing an oversold mark at 33.15, hinting at a potential relief rally if Ethereum can break through a resistance range of $2,873 to $3,099.
The financial implications of Powell’s cautious stance on interest rates have led to notable declines in cryptocurrency valuations, specifically Bitcoin and Ethereum. Institutional investments are increasing, reflecting a significant shift in sentiment. Technical analysis indicates a potential reversal for both cryptocurrencies, although caution remains prudent in this volatile environment.
Original Source: www.fxempire.com
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