- A look at what to expect if the Federal Reserve announces a rate hike.
- Why the impact of the announcement is unlikely to trigger a major setback.
Bitcoins [BTC] The downside potential has just been magnified based on recent statements by Federal Reserve Chairman Jerome Powell. The FED is reportedly planning to raise rates, an outcome that could put more pressure on the crypto and stock markets.
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Bitcoin’s historical performance makes it clear that interest rates have a marked impact on Bitcoin investor sentiment. Higher interest rates often force an outflow of liquidity from risky assets like Bitcoin, while low interest rates typically promote bullish sentiment.
The FED has announced that it will likely raise interest rates further as part of its anti-inflation efforts.
1/ Fed Chair Jerome Powell says robust growth in the US economy could warrant further rate hikes to curb inflation, as discussed at the Jackson Hole Economic Symposium. #Fed policy
through @rkansawyer https://t.co/8hHuSg1QiW
— CryptoSlate (@CryptoSlate) August 25, 2023
Bitcoin is likely to face more selling pressure if the FED raises rates. If that happens, BTC traders can expect the next range of support to be near or just below the $25,000 price range. This is because the same price range previously acted as support and resistance ranges.
Evaluation of the price impact of BTC
BTC was exchanging hands at USD 26,054 at the time of writing, after experiencing some resistance near the same price range. The price is once again in a consolidation phase and is also in the oversold zone. As a result, the subsequent disadvantage in the event of selling pressure could be limited.
Source: TradingView
Leveraged liquidations tend to exacerbate selling pressure. Bitcoin’s mid-month crash has already wiped out most of the leveraged positions that previously expected the price to recover to the $30,000 range.
This is clearly reflected in the degree of open interest and leverage in the market. Both the open interest rate and the estimated leverage ratio have recently fallen to their lowest level in four months.
Source: CryptoQuant
The lower open interest rate and estimated leverage ratio underline the fact that traders are now more cautious about downside risks. This further supports the expectation that the subsequent crash would be less pronounced with rate hikes.
Despite the above findings, it is still clear that the spot market has recently reacted to news that the FED might raise rates. For example, the announcement in the past 24 hours had a notable impact on Bitcoin exchange flows.
Read more about Bitcoin [BTC] Price Forecast 2023-24
The currency’s outflows exceeded the currency’s inflows during Friday’s trading session by a margin of 90,000 BTC. However, the data at the time of writing indicated that currency inflows were dominant by a margin of around 3000 BTC.
Source: CryptoQuant
Notably, the prevailing selling pressure was not enough to push BTC out of its current range. The main reason for this could be that the FED has not yet confirmed rate hikes.