Bitcoin and Crypto Market Rally Stalls as Economists Bet on High Rates

Key Insights

• Bitcoin and the broader crypto market paused ahead of the Federal Reserve decision.
• Markets expect policymakers to maintain a restrictive interest-rate stance.
• ETF flows and record stock market gains suggest capital rotation remains a headwind.

Bitcoin and the broader crypto market traded lower on June 17 as investors awaited the latest Federal Reserve policy decision. BTC slipped below $65,000, while the total cryptocurrency market capitalization fell roughly 2% to $2.23 trillion.

The pullback followed several weeks of recovery and reflected growing caution across risk assets ahead of the central bank’s updated economic projections and policy guidance.

Federal Reserve Outlook Keeps Pressure on Crypto

Bitcoin and other crypto prices retreated as traders anticipated for the next actions from the Federal Reserve. A survey of economists conducted by the FT found that most expect the Fed to maintain a hawkish stance.

Fed officials have a reason to have this tone. Recent macro data showed that the US labor market is strong, with the economy adding over 172k jobs in May. Another report by ADP showed that the private sector employers added 122k jobs.

At the same time, data showed that US consumer and producer inflation has continued going up because of the US-Iran war. The headline Consumer Price Index (CPI) rose to 4.2%, while the less-watched Producer Price Index (PPI) rose to 6.4%.

US inflation has remained above the Fed’s 2% target for over four years, putting pressure on officials to act.

Economists who talked to the FT also pointed to the ongoing AI boom, which is expected to support the US economy for a while. For example, the top four companies in the tech industry are spending over $750 billion a year.

On the positive side, there are signs that inflation growth may have peaked as crude oil prices retreat. Brent and the West Texas Intermediate (WTI) have dropped below $80 this week after the US reached an MoU with Iran.

Kevin Warsh faces a major risk. Sounding too hawkish will anger President Donald Trump, who appointed him to the role.

Bitcoin and other cryptocurrencies like it when the Fed is either cutting interest rates or when officials are signaling that they will slash interest rates. That signaling usually leads to a risk-on sentiment as investors rotate from value assets.

Rotation From Crypto to Stocks

Another possible reason why the crypto market rally is stalling is that investors are likely rotating from the industry to stocks. This rotation is likely happening in markets that are popular in the crypto industry, such as the United States, Japan, and South Korea.

The three popular US indices, like the Nasdaq 100, the S&P 500, and the Dow Jones, have all jumped to a record high. Similarly, in Japan, the Nikkei 225 and Topix have soared to record highs. The same is happening in South Korea, where the Kospi has jumped by over 70% this year.

One sign that this rotation is happening is in the ETF market. Spot Bitcoin ETFs have lost over $3 billion in assets this year, while Ethereum ones have lost over a billion. In contrast, the Vanguard S&P 500 Index has added $124 billion this year, with its assets crossing the $1 trillion mark.

Another sign is a recent report that showed that South Korean investors have already pumped $800 million into SpaceX.

Bitcoin Price Technicals Suggest Rally Has Run Out of Steam

The weekly chart shows that Bitcoin has some of the worst technicals in a while. It has retreated below the 200-week moving average and the 50% Fibonacci Retracement level.

At the same time, it has formed a series of lower lows and lower highs in this period. It is about to invalidate the highly bullish double-bottom pattern whose neckline is at $82,440.

Therefore, there is a risk that the coin will continue falling in the near term. If this happens, the next target to watch will be at $60,000. A drop below that level will point to further downside. Such a move will intensify the crypto market crash.

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