Investors had been expecting a 0.75% rise and Powell along with the FOMC hinted at a continuation of interest rates while also noting the possibility of a pivot based on the data reviewed at the upcoming meeting.
As Cointelegraph reports, in this scenario, Bitcoin and other cryptocurrencies like Ether and DOGE are likely to remain closely correlated with US stocks and display the same price dynamics seen before and after previous price-raising cycles. Bitcoin bulls are already preparing for a FOMC win and the price has jumped with $640 million in BTC options expiring on November 4.
Along with the growth of Bitcoin, most major cryptocurrencies including Ether, DOGE and Solana
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Green candles were recorded briefly after the rate hike announcement but also rebounded. There are several reasons for the recent movement.
Crypto market performance. Source: CoinMarketCap
The current rally in BTC and altcoins could indicate increased confidence in the market after several major developments.
Here are three reasons why the bitcoin price rose and then rebounded today and details the main drivers of growth.
Bitcoin open interest remains skewed towards short traders
Since the bitcoin price plunged to $17,600 on June 18, open interest for bitcoin futures has skyrocketed. Sharp price movements in the bitcoin price could trigger another liquidation event, but it is difficult to determine whether the movement will be to the upside or to the downside.
Many traders agree that if the Fed were to focus on its current policy of quantitative tightening and raising interest rates, the price of BTC could surge higher and liquidate a significant portion of the short interest in futures contracts.
The current price action has led to a wave of liquidation and one data point to watch is that there has been a sharp drop in total open interest. Data shows that $704 million of crypto shorts were liquidated on October 25, helping push Bitcoin over $20,000.
Bitcoin options open interest. Source: Coinglass
Short liquidations directly help push the bitcoin price higher by forcing automated buying pressure. The current rally is seeing open interest gaining momentum after holding steady in October which explains a lot of sideways trading in addition to the current rally.
Long-term data in favor of Bitcoin, according to market analysts
Investors’ confidence in the cryptocurrency market could also increase due to their belief that the US Federal Reserve can raise interest rates on a smaller scale in the next couple of months.
In the Fed statement, the possibility of a policy shift remains open:
In order to reach a monetary policy stance that is restrictive enough to bring inflation back to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the delays with which monetary policy affects economic activity and inflation, and economic and financial developments.
According to Macromicro, a company that publishes investor consensus estimates about expected changes in interest rates, it shows that interest rates may be lower than expected in the near future.
Interest rates may go down. Source: Macromicro
The chart indicates a possible slowdown in interest rate hikes. The general sentiment is that future rates may fall and investors believe that this has created the potential for a broad-based cryptocurrency market recovery.
The S&P 500 provides an overview of the economy in general. Currently, Bitcoin and the S&P 500 share a high correlation coefficient.
The correlation coefficient between Bitcoin and SPX. Source: TradingView
So if interest rates fall and the economy grows, bitcoin could reverse course if a similar shift occurs in stock markets. The better the overall climate, the better for the bitcoin price.
Related: Bitcoin price hits $20.8K as volatility emerges due to Fed’s 75-point rate hike
Bitcoin sell-offs may be a thing of the past
Bitcoin remaining over $20,000 is significant for traders who see the level as a major psychological support and resistance. The data on the chain currently confirms that the $20,000 minimum may not be purely speculative but is also technically sound.
The realized bitcoin price is currently concentrated between $17,000 and $22,000, highlighting a strong holder base.
Bitcoin UTXO realized price distribution in October 2022. Source: Glassnode
In addition to the realized price distribution, not only long-term holders of Bitcoin are in profit but 60% of all long-term holders are in profit.
Some investors may explain Bitcoin’s current low volatility, steady consolidation in the $20,000 range, and sellers’ unwillingness to pick up the tide.