Bitcoin Price Again Determined by Federal Policy: Analyst

Now that the Bitcoin ETF token is dead, the price trail of the leading crypto asset is back in the hands of the Federal Reserve, a new analysis suggests.

In a Friday report, European digital asset manager CoinShares said that Bitcoin's price movements again appear to be driven by the broader interest rate discussion.

“A closer examination of the past 40 trading days shows a consistent trend toward interest rate expectations in June,” wrote James Butterfill, head of research at CoinShares. A similar trend was observed in 2023.

According to CME FedWatch, the market seems confident that interest rates will remain on hold in June, with only a possible cut in Q4 this year.

Core PCE inflation—the Fed's preferred measure of inflation, which excludes food and fuel—has stuck more than expected over the past several months, standing at 2.8 percent in March. In contrast, GDP growth figures were recorded at 1.6% in Q1 2024, compared to 3.4% in the previous quarter.

The data also shows that the growth in the manufacturing and service sectors is decreasing respectively.

Such measures fuel inflation fears, raising expectations that the central bank will keep rates higher for longer. In response, CoinShares explains, the price of Bitcoin will fall below $57,000 leading up to the Fed's next meeting on May 1.

The central bank kept its policy rate above 5.25%, but announced a “surprise” as it plans to scale back quantitative easing (QT). This means reducing the balance sheet by $25 billion per month, rather than the previous rate of $60 billion, and slowing the rate at which the economy's supply of dollars contracts.

In theory, that bodes well for Bitcoin and other risky assets, which have previously thrived in soft money macro environments. Shortly after the Fed's announcement, the price of Bitcoin rebounded above $60,000.

“Raising the front-end value while posting QT at the same time can be like putting both the brakes on a car and accelerating at the same time,” Butterfill wrote. The U.S. Treasury may be reaching its limit to repay its short-term debt, leaving the Fed's QT strategy as the only option.

Butterfill expects the Fed to cut rates later this year in response to weak economic data, a cut that may be “delayed, but better than expected.”

“With Bitcoin's fixed supply and high volatility, when the Fed eventually cuts rates, this turbulent situation could support Bitcoin prices,” he said.

Edited by Ryan Ozawa.