Bitcoin price falls ahead of anticipated Fed and ECB rate hikes

Markets • July 24, 2023, 12:42PM EDT
Published 1 minute earlier on
  The Block

Quick Take

  • Bitcoin’s price fell to around $29,000 as the market prices in expected rate hikes from the Federal Reserve and the European Central Bank this week.

Bitcoin's price briefly dipped below $29,000 for the first time in a month on Monday amid headwinds related to expected rate hikes this week at the Federal Reserve and European Central Bank.

The price of the world's largest crypto currency fell 2.9% over the past 24 hours to $29,044 at 12:22 p.m. in New York, according to CoinGecko. 

On Wednesday, the Federal Open Market Committee will announce its next rate decision, with analysts expecting a hike of 25 basis points to bring its target range to 5.25-5.50%. On Thursday, the ECB is expected to raise rates by 25 basis points to 4.25%.

Investors will pay close attention to the wording of the Fed's post-rate decision statement. Should hawkish sentiments persist, bitcoin's consolidation around the $29,000 mark might face downward pressure.

Bitcoin headwinds

"Bitcoin headwinds emerge from the anticipated rate hikes from both the Federal Reserve and the European Central Bank this week," Jeff Feng, co-founder of Sei Labs, told the Block. "These monetary adjustments, though typical counter-inflationary measures, could indirectly challenge bitcoin's attractiveness as an inflation hedge."

However, Feng added the expectations could already be priced in by savvy market participants.

"The recent data showing better-than-expected inflation numbers has the potential to result in a more positive outlook on the market, possibly reinvigorating bullish sentiment in both the crypto and tech stock sectors, despite the rate hikes," he said.

Bitcoin accumulation indicators

Over the past month, reserves of bitcoin held by exchanges have been falling as miners send less.
 
According to CryptoQuant data, there was a decrease of bitcoin held across all exchanges by almost 100,000 coins over the past month. Bitcoin miners, meanwhile, have increased reserves on their affiliated wallets by around 2,000 coins in the same period.
 
Both metrics indicate liquid bitcoin supply is shrinking as more coins are being stowed away in cold storage wallets.
 
"This lowered supply, assuming steady demand, could create a supply-demand imbalance that boosts bitcoin's price trajectory," Feng said, adding that the data suggested miners are holding their rewards rather than selling them on exchanges. "This accumulation phase amongst miners signals bullish sentiment from one of Bitcoin's most critical factions."
 
Data from Glassnode also indicates a downward trend in the highly liquid supply of bitcoin. Addresses that hold coins for at least 155 days, classified as long-term holders, now control a record three-quarters of the digital asset's circulating supply, suggesting continued accumulation and weakening of sell-side pressures in the market.
 
"Bitcoin long-term holder supply has reached a new all-time high of 14.52 million BTC, equivalent to 75% of the circulating supply," Glassnode tweeted on Monday. "This suggests hodling is the preferred market dynamic amongst mature investors."

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