Bitcoin capital inflow may rise with expected Fed rate pause in December

Bitcoin BTC -0.96% could see more capital inflow if the U.S. Federal Reserve pauses rates at its next meeting on Dec. 13, according to analysts.

“There is anticipation of a pause in the Fed’s interest rate hikes, as indicated by Federal Reserve Governor Christopher Waller’s recent statements,” Bitfinex analysts told The Block, adding: “An interest rate pause could lead to more capital flowing into risk assets like bitcoin.”

The Bitfinex analysis referenced a speech by Federal Reserve Governor Chris Waller earlier this week. In the speech, Waller mentioned that the easing of the U.S. economy’s pace was an encouraging sign, indicating that the current monetary policy aligns with the Fed’s 2% inflation goal. “Data for October indicated an easing in economic activity, and forecasts for the fourth quarter show the kind of moderation that is more in keeping with progress on lowering inflation,” Waller said in a speech on Tuesday.

Bitcoin momentum has been bolstered by the anticipation of an upcoming Fed rate pause.

High probability of a rate pause

Waller added that he is confident current monetary policy is “well positioned to slow the economy and get inflation back to 2%.” His comments — combined with CME FedWatch’s 95% probability of a rate pause at the next Federal Open Market Committee meeting in December — are fostering optimism among analysts.

The Fed official was encouraged by the consumer price index inflation reading for October. “This is what I want to see,” he said. “For the month, there was no inflation, prices were virtually flat, and unlike earlier moments where improvements were concentrated in some goods and services, the moderation in inflation was broadly distributed,” he added.

However, Bitfinex analysts stressed that it is important to note that Waller also cautioned that inflation is still high. There is uncertainty about whether the slowing trend will be sustained. “Therefore, while a rate pause might boost bitcoin and other cryptocurrencies in the short term, the long-term impact would depend on a range of economic factors and the overall direction of monetary policy,” Bitfinex analysts said.

The potential of Fed rate cuts in 2024

Investors are looking forward to the next Federal Reserve rate announcement with anticipation. Particular attention will be given to the nuances in Fed Chair Jerome Powell’s post-announcement press conference and any signals about possible rate cuts in 2024.

Bitfinex analysts pointed to signals that indicate the market anticipates the U.S. central bank will commence cutting rates in the spring of 2024. “The anticipation of such a pause has already influenced bond yields and trader expectations, with rate cuts being priced in starting from May 2024,” Bitfinex analysts said.

“We believe part of the current price action and long-term holder positioning for a sustained long-term price increase is part of this effect. This shift in monetary policy, if it occurs, could create a more favorable environment for investment in risk assets, including cryptocurrencies,” the analysts added.

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