Bitcoin pares losses as stocks nudge higher at the European open

© Reuters.

By Samuel Indyk

Investing.com – Bitcoin and other major cryptocurrencies pared some of the losses seen post the Federal Reserve decision as stocks in Europe edged higher after the open.

The FTSE 100 had opened lower but quickly moved into positive territory as financials led the way higher. Meanwhile, Nasdaq 100 Futures climbed back above 14,000, and are narrowly outperforming S&P 500 and Dow Futures. 

The uptick in stocks has helped Bitcoin and other major cryptocurrencies edge higher, with Bitcoin currently trading near $36,500. However, the world's largest cryptocurrency is still lower by around 4% in the last 24 hours. 

Fed policy

The initial reaction to the Fed’s statement saw Bitcoin move higher as there were no surprises. The Fed laid the groundwork for an interest rate hike in March but the statement contained nothing too hawkish.

During the press conference, the mood changed. Fed Chair Jerome Powell refused to rule out hiking interest rates at every subsequent meeting this year, and also refused to rule out a potential 50 basis point hike to get inflation under control.

This was perceived as a hawkish shift from Powell, although it could have been viewed as Powell preferring to be vague while the inflationary picture evolves. Despite not ruling it out, Powell also didn’t commit to hiking interest rates at every meeting.

In his own words, he said the central bank would be “humble and nimble” when deciding policy and will be “guided by the data”.

Bitcoin moves

Bitcoin initially spiked up towards $39,000 following the statement before reversing course and dropping towards $35,500 this morning.

As European stock markets picked up a head of steam, Bitcoin rebounded towards $37,000 before settling around its current level near $36,500.

In the short term, support is seen around $35,500 before Monday’s low of $33,000 could come into play.

On the upside, a break above $40,000 would be needed to reverse the negative bias that has been seen in cryptocurrencies recently.

However, much will depend on how US stocks perform when the market opens at 14:30GMT.

Recent research from Goldman Sachs (NYSE:GS) has shown that the correlation with US tech stocks has risen significantly.

And although the price moves in Bitcoin tend to be larger than traditional assets, the correlation between the two has increased.

“Over the last two years, as Bitcoin has seen wider mainstream adoption, its correlation with macro assets has picked up,” Goldman Sachs strategist Zach Pandl said.