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Fed Pivot: Will Bitcoin Fly or Freeze in 2024?

Last Updated December 26, 2023 12:12 PM
Teuta Franjkovic
Last Updated December 26, 2023 12:12 PM

Key Takeaways

  • A rally in risk assets is being spurred by expectations that the Fed may cut rates earlier than initially anticipated.
  • The stock market may continue its upward trend if the Fed adopts a more lenient monetary policy.
  • Bitcoin and other cryptos have the potential for further growth, particularly if the SEC approves spot Bitcoin ETFs.

It might seem that the collapse of exchanges, like FTX, and regulatory actions against Binance and Coinbase would have negatively affected the price of popular tokens such as Bitcoin (BTC) and Ethereum (ETH). However, the reality is different. Bitcoin has seen a 150% increase this year, indicating some investors’ belief in the enhanced safety of the crypto market.

This sentiment could be accurate. Crypto could become more mainstream in 2024, drawing increased attention.  The anticipated approval of Bitcoin ETFs for retail investors could change things.

Fed Policy Shift Fuels Market Optimism

The latest United States Federal Reserve policy announcement  has sparked a surge in market optimism, feeding into expectations of relaxed financial conditions and increased liquidity in the US. This shift could explain a recent decline in US yields  and the dollar, alongside a boost in liquidity-sensitive stocks and cryptocurrencies.

The CME’s Fed Watch Tool now indicates a roughly 75% likelihood of the Fed initiating interest rate cuts by March .

Additionally, interest rate futures markets suggest a more than 60% chance of at least 150 basis points cut by the end of 2024. These developments have contributed to rising Bitcoin prices as investors anticipate more favorable conditions.

Inflation Hedge Wobbles Amid Rate Hikes and Market Turmoil

Cryptocurrency has been promoted as a solution to various economic challenges. These include inflation, low interest rates, diminishing purchasing power, and fiat devaluations. This optimistic view of crypto was embraced when its was on the rise, often independent of other assets’ performance.

Dan Raju, CEO of Tradier, a brokerage platform said :

“The truth is that crypto prices have proven to be impacted by the same directional sentiment that impacts retail stock investors. In general, high interest rates scare investors away from riskier investments like crypto, and the lowering of rates will be seen as a positive by the crypto investor community.”

Can the Fed Prop Up Political Gains and Crypto Prices?

BlackRock’s recent move, considered a potential “trillion dollar-plus” game-changer  for Wall Street, alongside the anticipated 2024 Federal Reserve “bailout” for President Joe Biden , could lead to significant disruptions for Bitcoin prices and the broader crypto market. These developments suggest a complex interplay between large-scale financial maneuvers and cryptocurrency market dynamics, potentially impacting investor strategies and market stability.

David Sacks, a technology investor, said : “The Fed is preparing a Biden bailout.”

US inflation has decreased from over 9% to 3.2% in the past year. This move followed the normalization of supply chains post-Covid lockdowns and substantial government stimulus.

While the economy has steered clear of recession, there are emerging signs of potential economic downturn, posing a challenge to President Biden’s approval ratings ahead of a potential election rematch with Donald Trump. Adding to these dynamics, Federal Reserve Chair Jerome Powell’s recent remarks after the Fed’s interest rate decision, coupled with projections of 75 basis points in cuts in 2024, have spurred a rally in both stock and cryptocurrency markets.

Powell said:

“Declaring victory would be premature, But, of course, the question is ‘when will it become appropriate to begin dialing back?'”

BlackRock’s Strategy and Fed Policies: Impact on Bitcoin and Crypto

In 2023, the cryptocurrency industry grappled with numerous scandals, shaking investor confidence and raising regulatory concerns. One notable incident involved Binance and its CEO, Changpeng Zhao, admitting to breaching U.S. anti-money laundering regulations.

Adding to the turmoil was the dramatic downfall of Sam Bankman-Fried’s FTX empire, which collapsed amid allegations of misusing customer funds and financial mismanagement.

Su Zhu and Kyle Davies of Three Arrows Capital faced scrutiny following the hedge fund’s bankruptcy, which was a significant blow to the industry.

Do Kwon, the figure behind Terraform Labs, also found himself embroiled in controversy after the dramatic collapse of the Terra ecosystem, including its stablecoin and LUNA token.

These events marked a tumultuous year for the crypto sector, highlighting the need for greater regulatory oversight and sustainable business practices within the industry.

In this context, the potential launch of a Bitcoin ETF is could be a crucial step towards legitimizing the industry, offering a regulated and structured approach that could address some of the systemic issues revealed by these scandals.

BlackRock’s involvement in the cryptocurrency space, along with the anticipated monetary policy changes by the Fed, could influence both Bitcoin and the broader crypto market. The interplay between these large-scale financial movements and cryptocurrency dynamics is crucial, as it affects investor strategies and the stability of the market.

Anticipated Bitcoin ETFs Awaiting SEC Approval

The SEC’s decision on several Bitcoin ETFs, expected in January 2024, could be a pivotal moment for the cryptocurrency industry. These ETFs include:

  1. Grayscale (GBTC): $46.10 billion AUM, with an expected response between January 5 and January 10, 2024.
  2. ARK and 21Shares (ARKB): $6.70 billion AUM, with the same response window.
  3. Bitwise (BITB): $1 billion AUM, response expected by January 14, 2024.
  4. Blackrock (iShares) (IBTC): $9.42 trillion AUM, with a response expected by January 15, 2024.
  5. VanEck, WisdomTree (BTCW), Invesco Galaxy (BTCO), Fidelity (Wise Origin). These companies, along with others, are also in the queue, with response dates up to March 31, 2024​​.

These ETFs, if approved, could lead to a significant influx of institutional money into the cryptocurrency market. It could even potentially stabilize Bitcoin prices. The decision could set precedents for future cryptocurrency-related financial products.

2024 Predictions for Crypto

The crypto market is expected to respond to these developments in 2024. The potential approval of spot Bitcoin ETFs could increase mainstream adoption and stabilize the market.

However, the industry must also navigate regulatory challenges and the impact of economic policies. Additionally, the upcoming Bitcoin halving in April could influence the market. It is, however uncertain whether it will trigger a rally as it has in the past.

 

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