Bitcoin Bounces After Fed Decision

After Bitcoin (BTC)witnessed a significant downturn this week, with its price plunging to $60,763, on Tuesday night, a drop of 17% from the all time-high earlier in March, it has quickly recovered ground to a high of near $68,000 on Wednesday. Investors are now wondering if there are further corrections to come, or if today’s recovery marks the beginning of a rebound.

Source: BNC

This week’s early decline in Bitcoin’s price was caused by some notable headwinds. These included an overheated market with overleveraged traders, outflows from the US spot Bitcoin ETFs, and today’s decision on interest rates by the Federal Reserve. As expected, the Fed left interest rates unchanged at 5.25% – 5.50%. The Fed said it still sees three rate cuts later this year, down from the four projected in December.

Bitcoin’s dump over the last week led to a suboptimal market structure caused by an overheated market, according to analysts from crypto research firm K33 Research. K33 analysts said Bitcoin’s “slow bleed” had led to “leverage-induced amplified downside volatility.”

Additionally, news of Japan’s central bank raising rates for the first time since 2007 and significant outflows from the Grayscale Bitcoin Trust (GBTC) have added to the bearish sentiment.

Tuesday was a negative flow day for the Spot Bitcoin ETFs thanks to $GBTC’s $643 million outflow day. Two consecutive days of outflows from the Bitcoin Spot ETFs added further pressure to Bitcoin’s price decline. The ETFs had their largest day of outflows on record, with a total of $326 million withdrawing from the funds on Tuesday. Grayscale reported that its Bitcoin Trust (GBTC) had over $23.7 billion in assets under management. If its outflows were to continue at the current rate, it would be out of assets by late July. However, this isn’t expected to happen, as early investors in GBTC are deep in profit and would experience a significant tax event were they to withdraw.

Despite the recent correction, analysts at Bernstein view Bitcoin’s price dip as a temporary opportunity for investors. According to Gautam Chhugani and Mahika Sapra, analysts at the research and brokerage firm, the current consolidation phase presents a favorable buying opportunity ahead of Bitcoin’s halving event scheduled for April.

“We believe the current phase of bitcoin consolidation is temporary and offers a dip buying opportunity prior to the Bitcoin halving,” remarked Chhugani and Sapra in a note to clients. They expect the market to undergo further consolidation before the halving, followed by a continuation of the overall bull market.

Bitcoin halvings, occurring approximately every four years, are programmed to reduce the reward subsidy for miners. The upcoming halving event, slated for April 20, will see the reward drop from 6.25 BTC to 3.125 BTC per block, while miners will continue to earn additional transaction fees.

Despite concerns surrounding Bitcoin’s price action leading up to the halving, analysts remain optimistic about its long-term trajectory. Rekt Capital, a crypto analyst, pointed out that Bitcoin could be on the verge of entering a pre-halving “danger zone,” historically characterized by price retracements in the lead-up to the halving event.

Source: Rekt Capital

“In two days, Bitcoin will officially enter the Danger Zone where historical pre-halving retraces have begun,” shared Rekt Capital. Past halving events have seen Bitcoin experience significant dips, with declines of 40% and 20% observed in 2016 and 2020, respectively.

And as the chart below shows, significant corrections in a bull market, are par for the course in bitcoin’s price history.

Source: X

Despite short-term fluctuations, most analysts maintain a bullish outlook for Bitcoin, forecasting substantial price appreciation following next month’s halving. Referring to yesterday’s dip, technical analyst Peter Brant wrote on X, “When Bitcoin has a sudden and sharp shake-out decline, the market is just winking at you.” Brant predicts that the price of Bitcoin could reach $150,000 by Q4 2025.

Expect volatility.

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