Fed holds rates steady, but here’s why it might be bullish for crypto!

• Bitcoin held on close to $105k as the Fed kept rates steady, signaling potential bullish momentum
• Ethereum climbed past $3,220, with traders eyeing a breakout amid shifting macroeconomic conditions

The Federal Reserve’s latest decision to maintain interest rates has sent ripples across the financial markets. While traditional assets like stocks and bonds have seen mixed reactions, the crypto market appears poised for a potential bullish breakout.

The decision to hold rates steady aligns with broader expectations, but it also sets the stage for a liquidity-driven rally in digital assets. 

Fed’s decision and its market impact

The Federal Open Market Committee (FOMC) kept interest rates unchanged, citing stable inflation and economic resilience. On 29 January, the Federal Reserve announced its decision to keep the benchmark interest rate unchanged at 4.25%-4.5%. 

Market participants had largely anticipated this move, with many expecting rate cuts later in the year. Historically, rate stability or cuts have been favorable for risk assets, including crypto, as they lead to greater liquidity and a lower cost of borrowing.

With the Fed maintaining a cautious approach, investors are shifting focus towards potential rate reductions in the coming months. The expectation of lower rates fuels a risk-on sentiment, benefiting assets like Bitcoin, Ethereum, and other cryptocurrencies. This trend is in line with previous cycles, where the Fed pauses and dovish pivots have historically sparked crypto market rallies.

Bitcoin and Ethereum react to Fed’s position

Following the Fed’s decision, Bitcoin (BTC) and Ethereum (ETH) saw some resilience, with BTC trading close to $105,000 and ETH reclaiming the $3,200-level. The charts indicated a strong support zone around Bitcoin’s 50-day moving average at $99,249.50, suggesting that bullish momentum remains intact.

Similarly, Ethereum bounced off a key support, with its 50-day moving average at $3,420.08 reinforcing the potential for further upside.

Traders and institutional investors appear to be accumulating BTC and ETH too, anticipating a liquidity-driven surge. If risk appetite continues to grow, Bitcoin could retest its recent highs while Ethereum may push towards $3,500 in the short term.

How the U.S Dollar Index, stocks reacted

The DXY has been trading at around 108. A weakening dollar typically benefits crypto as investors seek alternative stores of value. The current stabilization in DXY seemed to hint that traders are digesting the Fed’s decision, but any downward movement in the dollar index could further propel Bitcoin and Ethereum higher.

Historically, an inverse correlation exists between DXY and crypto prices. A decline in the dollar’s strength often leads to a hike in capital flows into digital assets, reinforcing the bullish case for crypto in the coming months.

Additionally, the S&P 500 remains near its all-time highs, indicating sustained investor confidence despite macroeconomic uncertainties. Equities tend to rally when monetary policy shifts toward a dovish stance, and crypto often follows a similar pattern. The S&P 500’s resilience suggested that broader market sentiment remains positive, which could spill over into the crypto sector.

If equities continue to perform well, the correlation between stock indices and Bitcoin may drive additional inflows into crypto, pushing prices higher.

Crypto market cap trends

The total crypto market capitalization climbed to $3.57 trillion – A sign of renewed interest in digital assets. At press time, volume remained strong at $131.06 billion, suggesting that traders are actively positioning themselves for a potential breakout.

This upward trajectory in market cap seemed to be in line with the broader expectations that liquidity conditions will improve – Indicating sustained bullish momentum in the crypto space.

Source: CoinMarketCap

The Fed’s decision to hold rates steady and expectations of future cuts present a compelling case for a crypto market rally. Key indicators, including Bitcoin and Ethereum’s price action, the U.S. Dollar Index, and the S&P 500, all suggested that risk appetite may be increasing at press time. 

If liquidity conditions continue to improve and macroeconomic factors remain favorable, crypto markets could be on the verge of a significant uptrend. Investors should closely monitor these developments. Especially as the coming months could provide prime opportunities for growth in the digital asset space.