Bitcoin Soars to Record High Above $106K, Then Retreats as Hawkish Fed Rate Cut Looms

Bitcoin BTC$93,985.74 surged to over $106,000 in early Asian hours, setting new all-time highs before quickly retreating to $104,500 amid concerns about the upcoming U.S. Federal Reserve (Fed) rate cut.

The U.S. central bank is expected to reduce the benchmark borrowing cost by 25 basis points to the 4.25% to 4.5% range, marking a total easing of 100 basis points since September. However, there are concerns that the accompanying Fed commentary will seek to temper expectations for further easing, potentially diminishing the bullish impact of the rate cut.

The Fed will announce its rate decision, the dot plot, comprising interest rate projections, and economic forecasts on Dec. 18 at 14:00 ET. A press conference by the Fed Chair Jerome Powell will occur a half hour later.

The previous dot plot released on Sept. 18 showed 2.5 points of rate cuts by the end of 2026, pushing the borrowing cost below 3%. Some observers believe the Fed will trim these forecasts on Wednesday.

"We suggest the risk of a 'hawkish' cut with less rate hikes next year than anticipated in September in the Summary of Economic Projections (dot plot), recognition that economy is stronger than it had expected previously, and inflation is on a bumpy path that allows the Fed to be patient," Marc Chandler, chief market strategist at Bannockburn Global Forex, said in Sunday's edition of the newsletter.

If the projections reflect slower or fewer rate cuts, Treasury yields and the dollar will likely extend their recent run higher, potentially making it harder for risk assets, including BTC, to stay as strongly bid as they have been of late.

That said, seasonality is quite bullish for BTC, and with President-elect Trump sending positive regulatory vibes to crypto, a potential hawkish Fed may not have a long-lasting impact on the cryptocurrency.

Besides, the Fed rate cuts will still remain on the table alongside an expected easing from China, keeping BTC's bull case intact.

"Yet, whilst lots of ink will be spilled on the pace of cuts going forward, little detracts from the supportive macro dynamic of a global central bank rate cutting cycle and rising global liquidity, set to be propelled by China," founders of the newsletter service LondonCryptoClub said.

Later this week, markets will get the latest core PCE reading, the Fed's preferred inflation gauge, which will reveal whether the recent upticks in consumer price inflation are a fluke or hints of a genuine inflation rebound.