- A look at what to expect if the Federal Reserve announces a rate hike.
- Why the impact of the announcement will likely not trigger a major pullback.
Bitcoin’s [BTC] downside potential just got elevated based on recent statements by the Federal Reserve Chairman Jerome Powell. The FED is reportedly planning to raise interest rates, an outcome that could place more pressure on the crypto and stock markets.
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Bitcoin’s historic performance makes it clear that interest rates have a definite impact on Bitcoin investor sentiment. Higher interest rates tend to force liquidity outflows from risk-on assets such as Bitcoin, while low interest rates tend to favor bullish sentiment.
The FED revealed that it will likely raise interest rates higher as part of anti-inflation efforts.
1/ Fed Chair Jerome Powell indicates that the U.S. economy’s robust growth may warrant further interest rate hikes to curb inflation, as discussed at the Jackson Hole Economic Symposium. #FedPolicy
via @rkansawyer https://t.co/8hHuSg1QiW
— CryptoSlate (@CryptoSlate) August 25, 2023
Bitcoin will likely be in for a more sell pressure if the FED raises rates higher. If That happens, BTC traders should expect the next support range to occur near or just below the $25,000 price range. This is because the same price range previously acted as a support and resistance range.
Evaluating BTC’s price impact
BTC exchanged hands at $26,054 at press time after experiencing some resistance near the same price range. The price is once again in a consolidation phase while also being in the oversold zone. Because of this, the subsequent downside in case of sell pressure could be limited.
Source: TradingView
Leveraged liquidations tend to exasperate the sell pressure. Bitcoin’s mid-month crash has already weeded out leveraged most of the leveraged positions that previously anticipated the price to recover back to the $30,000 range.
This is evident in the level of open interest and leverage in the market. Both the open interest and estimated leverage ratio metrics recently dropped to a 4-month low.
Source: CryptoQuant
The lower open interest and estimated leverage ratio underscore the fact that traders are now more cautious regarding the downside risks. This further supports the expectations that the subsequent crash in case of interest rate hikes would be less pronounced.
Despite the above findings, it is still clear that the spot market recently reacted to news of the FED potentially raising interest rates. For example, the announcement in the last 24 hours had a noteworthy impact on Bitcoin exchange flows.
Read about Bitcoin’s [BTC] Price Prediction 2023-24
Exchange outflows outpaced the exchange inflows during Friday’s trading session with a 90000 BTC margin. However, the data at the time of writing indicated that exchange inflows were dominant with a roughly 3000 BTC margin.
Source: CryptoQuant
The prevailing sell pressure was notably not enough to knock BTC out of its current range. The main reason for this could be the fact that the FED has not yet confirmed any rate hikes.