After hoovering just above the $100,000 level for a few days, Bitcoin managed to take another surge upwards and jumped past $105,000 again on Wednesday after the U.S. Federal Reserve (FED) stuck to expectations about interest rates. No surprises from the central bank meant the market got a rare moment of stability.
No Changes on Interest Rates
The Federal Reserve decided not to raise interest rates, keeping them between 4.25% and 4.5%. FED Chair Jerome Powell did say inflation is still “a bit too high,” but instead of making any sudden moves, the central bank chose to wait and see how things develop.
At first, the market reacted with a dip. Stocks, including the S&P 500 and the Dow, lost some ground, and Bitcoin also dropped. But that didn’t last long. Bitcoin rebounded quickly and shot back above $100,000.
Future Markets & U.S. Banks Getting Into Crypto?
Bitcoin’s price spike had a lot to do with what happened in the futures market. Some traders had bet on a price drop—these are called short traders. When Bitcoin moved higher instead, many of their positions were liquidated, meaning their trades were automatically closed because they no longer had enough funds to cover their losses.
In just an hour, $15 million worth of short positions disappeared. That created a domino effect. More short traders got squeezed out, buyers stepped in, and the price climbed even higher.
Another factor that helped push Bitcoin up was Powell’s comments at the Federal Open Market Committee (FOMC) meeting. He signaled that U.S. banks are allowed to serve crypto clients, as long as they follow risk disclosure rules. Responding to a crypto-related question, Powell stated that U.S. banks are “perfectly able” to work with crypto customers, easing concerns about regulatory pressure, including worries tied to “Operation Choke Point 2.0.”
Powell also mentioned that “great regulation on crypto would be helpful.” However, he clarified that the U.S. central bank cannot legally hold Bitcoin. In response, Senator Cynthia Lummis suggested that the law should be changed if necessary.
What Do Analysts Say?
Powell’s comments mostly lined up with what analysts had been expecting. Economist and crypto trader Alex Krüger called the press conference “good” and thought Powell seemed positive about both economic policy and the broader outlook.
This is a good Powell press conference. He is optimistic on both policy and the economy. Satisfied with progress towards the Fed’s dual goals. The FOMC statement had removed mention of progress towards inflation, generating a bear trap before the conference. No negative comments…
— Alex Krüger (@krugermacro) January 29, 2025
At time of writing Bitcoin is trading at $105,500 according to CoinMarketCap data.
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