Bitcoin experienced a turnaround on Wednesday, bouncing back from early losses as investors paused amidst the recent pullback to contemplate the Federal Reserve's latest policy decision. The flagship cryptocurrency saw a 1.7% increase, reaching $65,773.23, according to Coin Metrics, after dropping to $60,793.60 earlier in the day.
The cryptocurrency market strengthened following the conclusion of the Federal Reserve's two-day policy meeting, during which the central bank maintained rates as anticipated and indicated the possibility of multiple rate cuts throughout the year. Similar to tech stocks, Bitcoin can benefit from low interest rates and enhanced market liquidity, leading to improved sentiment and increased investment in growth assets.
Bitcoin's price movement shows the inverse relationship between rates and Bitcoin's price. When the Fed raises interest rates, liquidity is withdrawn from the market, affecting Bitcoin and tech stocks adversely. Conversely, rate cuts by the Fed inject liquidity into the market, potentially benefiting risky assets like Bitcoin. Bitcoin's diverse nature allows it to behave like a high beta tech stock at times.
Despite a 10% decline over the past week from its all-time high of $73,797.68 last Thursday, Bitcoin remains up 53% for the year.
Ether and Other Cryptocurrencies
Ether also experienced a 1.2% increase on Wednesday, reaching $3,379.43, after surpassing $4,000 the previous week. Other cryptocurrencies saw mixed results, with Polygon’s matic token gaining 1.5%, Solana remaining flat, and dogecoin jumping 7%.
Crypto-linked stocks performed well during the day, with Coinbase rising by 11%, MicroStrategy adding 9% following a recent drop of about 20%, and various mining sector companies such as Iris Energy and CleanSpark climbing by 26% and 22%, respectively. Marathon Digital advanced by 16%, while Riot Platforms, upgraded by JPMorgan to overweight from neutral on Wednesday, increased by 11%.
The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all closed at record highs after the conclusion of the Fed meeting.
Recent Bitcoin Weakness and Market Trends
The recent weakness in Bitcoin stemmed from traders beginning to secure profits as the cryptocurrency surged by approximately 70% from the beginning of the year to its peak last Wednesday. Data from CryptoQuant revealed a significant spike in short-term holders selling their Bitcoin at a profit on March 12. This profit-taking triggered an increase in long liquidations of leveraged Bitcoin positions that persisted into the beginning of this week, as reported by CoinGlass.
Historical patterns in previous Bitcoin bull markets have seen 20%-30% pullbacks as a regular occurrence when the market heats up. Signs of an overheating market were evident over the past week, prompting caution among investors.
Bitcoin's resilience following the Federal Reserve meeting highlights its sensitivity to macroeconomic factors and investor sentiment. The cryptocurrency market continues to exhibit volatility but remains an attractive option for investors seeking exposure to digital assets amidst evolving market conditions.