Bitcoin bounced toward $49,000 on Wednesday as traders reacted to the U.S. Federal Reserve’s decision to accelerate its stimulus withdrawal. Some analysts suggested the Fed decision was already priced in, which means some traders already sold long positions, which created attractive price levels for short-term buyers.
The central bank will reduce its bond purchases by $30 billion every month to wind them down early next year, twice as fast as the current pace of withdrawal of $15 billion every month. Some crypto investors say the $120 billion-a-month program helped to bolster bitcoin’s appeal as an inflation hedge, CoinDesk’s Brad Keoun wrote.
“The most likely path forward is more choppy/sideways price action heading into year end, though any major risk-off event or volatility spike that punishes risk assets would likely drag on BTC and the broader crypto market as well,” Delphi Digital, a crypto research firm, wrote in an Wednesday memo.
Despite higher losses, however, blockchain data suggests that some investors continue to hold bitcoin. For example, the balance of BTC on exchanges has continued to decline this year, which could mean investors prefer to hold bitcoin in their wallet instead of making it available for sale on the exchange.
Damanick is a crypto market analyst at CoinDesk where he writes the daily Market Wrap and provides technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also a portfolio manager at Cannon Advisors, which does not invest in digital assets. Damanick does not own cryptocurrencies.
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