Experts Predict Bitcoin Could Plunge to $12,000 Amid Fed Rate Hikes
The Federal Reserve's interest rate increase may trigger a significant Bitcoin price drop, reflecting stock-like behavior in the crypto market.
Tobi is a cryptocurrency writer at Investopedia dedicated to making blockchain and digital assets easy to understand for everyone.
Several industry experts are sounding alarms that Bitcoin might soon hit a new low, potentially falling to $12,000. This forecast comes amid a backdrop of impactful macroeconomic factors, including rising Federal Reserve interest rates and inflation data, which are heavily influencing Bitcoin's valuation. The cryptocurrency market is currently struggling, with Bitcoin having shed roughly 60% of its value since its peak. At the time of writing, Bitcoin trades at $18,992, marking a 6% decline over the past week.
Key Insights
- Leading crypto analysts anticipate a major market downturn ahead.
- The Federal Reserve's upcoming interest rate decision is pivotal for Bitcoin's price trajectory.
- Bitcoin is currently trading below the crucial $20,000 threshold.
Impact of Federal Reserve Rate Decisions on Bitcoin
The Federal Reserve commenced its two-day meeting on September 20, with expectations of a 0.75% interest rate hike on September 21. Should this materialize, it would mark the third consecutive increase. A recent Goldman Sachs report, led by economist Jan Hatzius, suggests that rate hikes could accelerate beyond initial projections.
Amid this economic uncertainty, a pseudonymous crypto analyst known as Doctor Profit warned that the Fed's forthcoming moves could trigger a severe market downturn. He tweeted, "Please consider FED's next decisions. 0.75 [rate hike] already priced in, 1bps and we see blood." He also indicated that Bitcoin might have entered a bottoming phase at current price levels, sharing historical price performance data comparing 2012-2016 and 2020-2022.
Source: Twitter, Doctor Profit
Prominent crypto analyst Justin Bennett echoed these concerns, highlighting a bearish pattern in Bitcoin since May's market crash. He forecasts a sharp decline that could push Bitcoin back to its 2018 bear market lows around $12,000.
Bitcoin’s Stock-Like Behavior
Traditionally viewed as a hedge against inflation, Bitcoin's price has nonetheless been influenced by inflation data this year. This has contributed to a notable correlation between cryptocurrency and stock market volatility. Recent analysis reveals a 60-day correlation coefficient of 0.72 between Bitcoin and S&P 500 contracts, nearing a historic high recorded in May. This coefficient measures the strength of the linear relationship between these assets.
Final Thoughts
There was optimism that the Ethereum Merge would spark a recovery in Bitcoin and the broader crypto market. Despite the seamless execution of the Merge, the market failed to respond positively. Currently, Bitcoin is behaving more like a traditional stock, making the Federal Reserve’s interest rate decisions critical in shaping the future of Bitcoin and the entire cryptocurrency ecosystem.
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