under pressure from rates and the Fed, will the queen of cryptos plunge?

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– Bitcoin, the number 1 cryptocurrency

Bitcoin’s surge has stalled since mid-December but not at any time: since the Fed meeting. “Lately, the Fed’s focus has once again been on inflation and less on employment. While it had made significant progress towards the inflation target of 2% in 2023 and early 2024, also favoring the Fed’s decision to start lowering rates, inflation has now not made any progress since… six consecutive months», argues in this regard Alexandre Baradez, head of market research at IG France.

Core PCE inflation, the Fed’s preferred inflation measure, had fallen to 2.6% (annual variation) in May 2024, but it has not slowed down since and has even rebounded a little to currently showing at 2.8%. This level of inflationis not dramatic in itself (we are far from the peak reached in 2022 at 5.4%) but inflation is sticky (that is to say recalcitrant, Editor’s note)… Most members of the Fed note the lack of progress on inflation in recent months, in an economic environment which remains solid in the United States. And the lack of visibility on future American trade policy reinforces the Fed’s need for patience on the pace of the next rate cuts», Underlines the expert.

High bond yield environment is a headwind for bitcoin

The bond market has understood this well, with a marked rebound in US long-term rates. “The United States 10-year rate returned to the 4.8% zone, or 1.2 percentage points more than in mid-September, when the Fed began its rate cut cycle. And after the solid employment report, the market is now just anticipating a rate cut by the end of the year, while the Fed last September anticipated a 1 percentage point rate cut for 2025. that is to say the equivalent of 4 rate cuts», recalls Alexandre Baradez.

However, we know that bitcoin, digital gold, is not a yield asset and can be sensitive to the interest rate environment and monetary policy. “We saw this clearly in 2020/2021 with a major surge, in an environment of abundant liquidity from Central Banks and with very low or even negative bond rates. But when central banks toughened their tone at the end of 2021 and began to raise rates very sharply in 2022, bitcoin and all cryptoassets weakened.», adds the analyst.

The environment of high rates on bonds currently is therefore not conducive to bitcoin, “knowing that it has experienced a particularly sustained rally since September, riding first on the Fed’s sharp rate cut in September (0.5 percentage points at once), then on the Trump trade in October, anticipating the victory of Donald Trump, then after the American election, and he finally benefited a lot from the buzz Saylor, the CEO of MicroStrategy inviting large companies to stake bitcoin in their balance sheet», explains Alexandre Baradez.

What are the prospects for bitcoin, from a technical analysis point of view?

We are currently in a profit-taking phase on bitcoin, after this strong upward cycle. “In terms of technical analysisbitcoin has already corrected 23.6% (a classic Fibonacci retracement, Editor’s note) of the rally from September to December. In the environment of patience of the Fed on its next rate cuts, this correction could extend towards the following technical retracement of 38.2% (Fibonacci), at 87,000 dollars, or even on 80,500 dollars (50% Fibonacci retracement) where an oblique connecting two 2021 highs also passes», warns the analyst.

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– Bitcoin: price evolution and technical analysis

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