Bitcoin price risks falling to $21,000, US Fed rate hike isn't the reason

CoingapePublished on 2023-02-01Last updated on 2023-02-01

Abstract

Bitcoin price risks entering the bear market again as supply of stablecoins continues to fall in the crypto market.

Bitcoin price enjoyed a 40% rally in January, turning the crypto market bullish. The positive sentiment among traders caused the crypto market to recover over a $1 trillion market cap. Traders await the U.S. Federal Reserve rate hike decision and Chair Jerome Powell’s outlook on the economy to decide their trades for the next few weeks.

Bitcoin price continues to trade near the $23,000 level as bulls and bears fight to maintain their dominance ahead of the Fed policy decision. The 24-hour low and high for Bitcoin are $22,884 and $23,225, respectively.

Bitcoin Price Risks Turning Bearish Again

According to on-chain analysis, the circulating supply of stablecoins is decreasing in the crypto market. Stablecoins can be described as the liquidity of the crypto market.

In 2020, a massive increase in the supply of stablecoins resulted in a bullish crypto market. However, the supply of stablecoins dwindled since February 2022, causing a bear market that ended the journey for many crypto companies such as crypto exchange FTX.

Bitcoin: Stablecoins Circulating Supply. Source: CryptoQuant

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In January 2023, a short-term increase in the circulating supply of stablecoins led to a 40% rise in the Bitcoin price. However, a death cross between stablecoins circulating supply of MA 21 and MA 100 is likely to happen again. It will cause the Bitcoin price to fall.

If the circulating supply of stablecoins does not increase further, the crypto market will enter a bear market again. It will impact investor sentiment massively.

U.S. Fed Rate Hike Decision

The U.S. Fed raised interest rate by 425 bps last year, with four consecutive 75 bps rate hikes and a 50 bps rate hike in December. The market expects a further slowdown in rate hike to 25 bps due to cooling inflation, strong jobs data, and an increase in the U.S. GDP growth rate at 2.9% in the fourth quarter.

According to CME FedWatch Tool, there’s a 99.3% probability of a 25 bps rate hike by the U.S. Fed rate hike. The U.S. Dollar Index (DXY) shows increased volatility ahead of the Fed policy decision, risks fall in Bitcoin price.

Christopher J. Waller, a member of the Federal Reserve Board of Governors, asserts the Fed needs six months of data, not three months of positive data to consider a pivot. Thus, the Fed is likely to pause the rate hike before their May 2-3 meeting.

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