The Federal Reserve (Fed) of the United States announced that the interest rate remains unchanged. There will be no immediate increases or cuts, this will continue at 5.5% annually. Besides, One interest rate cut is expected in the remainder of 2024 and four next year. It is worth clarifying that, as BitcoinDynamic reported yesterday, the majority of investors and financial analysts expected two cuts by 2024. At the time of this publication, a few minutes after the Fed's announcement, The price of bitcoin shows high volatility although without defining, yet, a clear upward or downward trend. Apparently, many were hoping that an immediate cut in interest rates would be announced (which usually favors the stock market and cryptocurrencies), but this is not what happened. That's why, Bitcoin's first movements were downwards as can be seen in the following graph. We will have to wait a few hours to be able to clearly define what the impact is on the price of bitcoin.
Bitcoin price with 1 minute candles. Source: TradingView. AnywayIn the long term, interest rates in the United States being frozen should be bullish for BTC.. When this happens, investors go into the market to explore options beyond “safe” investments, such as Treasury bonds, in search of higher returns. In this context, cryptocurrencies and the stock market tend to be favored.
Interest rates in the US over the past year. Source: TradingView. It is to be expected that, if inflation data continues to decline, as BitcoinDynamic reported this morning, In a few months the Fed decides to make the projected decreases in the interest rate effective further favoring BTC and the stock market. «In recent months, there has been modest progress toward the Committee's 2 percent inflation target,» the policymakers said in their statement. Regarding this projection, the CEO of the investment company, Franklin Templeton, commented hours ago before the FOMC meeting (the Fed's department that determines interest rates):
«It will be a pretty boring meeting. I think it will be interesting to see the economic projections that come out and how they change, if at all, from the March projections, but really, as we get closer to 2025, we are still convinced that the FED will continue to see disinflation towards its objective and that this will allow this normalization to be more towards the neutral type. Ed Prerks, CEO of Franklin Templeton.
Bitcoin liquidates positions of leveraged traders
Bitcoin's sharp movement caused liquidations in futures traders who operate with leverage. The following graph, provided by CoinGlass, shows how, just at the moment when the Fed's announcement was known and the price of bitcoin fell, More than $90,000 were liquidated in just one minute.
Settlements on cryptocurrency exchanges. Source: CoinGlass. It is worth clarifying that these liquidations involve not only bitcoin traders but also other cryptocurrencies. This is because Altcoins, in general, tend to follow the price movement of BTC, whether up or down.
Updates 6/12/2024: Comments, contextual data and information on liquidations on cryptocurrency exchanges were added to the initial original post.