Bitcoin experienced a significant rebound on Thursday, reversing recent losses and tracking a broader rally in risk-driven markets. This surge came after the Federal Reserve announced its decision to keep interest rates steady and indicated potential rate cuts in 2024.
Bitcoin surged by 7.9% to reach $66,540.9 by 01:09 ET (05:09 GMT), rebounding from a low of $60,000 recorded on Wednesday. The cryptocurrency, which had previously soared to record highs just last week, faced heavy profit-taking before the Fed’s announcement.
The recovery in Bitcoin’s price was further bolstered by weakness in the US dollar, which plummeted sharply from two-week highs following the Fed’s announcement. This decline in the dollar provided support to Bitcoin and the broader cryptocurrency market.
Ethereum, the world’s second-largest cryptocurrency, also benefited from the positive market sentiment, posting a 10% increase on Thursday to reach $3,454.79.
Overall, the rebound in Bitcoin’s price and the broader cryptocurrency market underscored the impact of macroeconomic factors, such as the Fed’s monetary policy decisions and movements in the US dollar, on digital asset prices.
Bitcoin thrives in a low-rate environment
The Federal Reserve maintained its forecast of a 75 basis point reduction in interest rates for 2024, signaling a continued accommodative monetary policy stance. Fed Chair Jerome Powell also acknowledged the slow progress towards the central bank’s 2% annual inflation target.
For Bitcoin, lower interest rates are generally viewed as favorable, as they create a high-liquidity environment that encourages speculative investments. The cryptocurrency’s bull run in 2021 was largely fueled by ultra-low interest rates implemented in response to the COVID-19 pandemic.
In 2024, Bitcoin has already seen impressive gains, surpassing a 50% increase year-to-date, following a remarkable rally of over 100% in 2023. These recent gains were fueled by heightened capital inflows, particularly after the approval of spot exchange-traded funds (ETFs) for US markets earlier in the year. The introduction of spot ETFs simplifies Bitcoin investment for traditional investors, potentially leading to increased adoption and demand.
Analysts are optimistic about Bitcoin’s prospects, with many expecting the cryptocurrency to surpass the $100,000 level by the end of 2024. However, Bitcoin and the broader crypto industry continue to face challenges, including a loss of trust stemming from high-profile frauds and scandals over the past two years. Additionally, Bitcoin’s perceived volatility remains a deterrent for risk-averse investors, limiting its attractiveness compared to traditional assets. Nonetheless, the combination of lower interest rates and increased accessibility through spot ETFs could pave the way for a significant rally in Bitcoin later in the year.