Bitcoin (BTC) has gained 3.1% this week,
trading at $98,146, nearly recovering from a sharp 14% decline sparked by
hawkish comments from the Federal Reserve (Fed) regarding future monetary
policy. However, the recovery could be temporary, with further downside risks
looming.
The Fed cut interest rates by 0.25% on
December 18 but reduced its projections for 2025 rate cuts to two, down from
four expected in September. This triggered a market sell-off, with the S&P
500 dropping 3.5% on Wednesday—its steepest one-day decline since 2020. Bitcoin
mirrored this downturn, falling 13.5% in two days to $92,276, as the Fed’s
comments significantly weighed on investor sentiment.
A rebound ensued, fueled by
better-than-expected inflation data and optimism surrounding U.S.
President-elect Donald Trump’s policies. November's PCE inflation index came in
lower than anticipated, offering a glimmer of hope for markets. Additionally,
Trump’s nomination of Stephen Miran, a critic of Fed Chair Jerome Powell and an
advocate for crypto regulation reform, as chair of his Council of Economic
Advisers boosted confidence in a more crypto-friendly administration.
Speculation about a potential U.S. crypto reserve under Trump’s leadership has
further fueled optimism in the crypto market.
Still, significant volatility lies ahead. A
record options expiration worth $20 billion on Bitcoin and Ethereum is
scheduled on December 27, representing nearly half of all open interest on
Deribit. This event could lead to heightened price swings, though Bitcoin is
expected to remain within the $90,000-$100,000 range in the short term.
Looking into January, historical trends
suggest it is not a favorable month for cryptocurrencies, averaging negligible
gains. Combined with Bitcoin's extreme overbought conditions, a pullback to
$70,000 is a plausible scenario. In a more optimistic outlook, prices may
stabilize above $90,000, while a middle-ground scenario likely reflects a
consolidation phase before another upward move towards long-term targets of
$200,000+.
Large institutional investors appear to be
betting on continued strength. Spot IBIT (BlackRock), FBTC (Fidelity), and GBTC
(Grayscale) reported net inflows of $1.44 billion last week, up significantly
from $640.2 million the prior week. These inflows suggest that institutional
players are positioning for a potential "Santa rally," which could
boost Bitcoin prices before year-end.