The announcement of the increase in interest rates and expectations of falling inflation led Bitcoin to recover.
This Wednesday, February 1, the Fed announced a 0.25% increase in interest rates and indicated that it will continue the increases in successive months. The bitcoin price recorded a 2.5% rebound after the announcement.
Although inflation subsided in 2022, the Federal Reserve continues with its goal of bringing it to 2%, said Jerome Powell, president of that organization. From June 2022 to December 2022, inflation dropped from 9.1% to 6.5%.
Although it is the second rate cut, the Fed indicates in a press release that it will continue the monthly increases in successive months, although it did not specify a specific term. After applying 5 consecutive increases of 0.75% since last June, the Fed lowered the increase to 0.5% in December.
"The Committee anticipates that continued increases in the noted range will be appropriate to achieve a monetary policy stance that is tight enough to bring inflation back to 2 percent over time," Jerome Powell noted.
This Tuesday, when the Fed meeting began, there were already expectations of a 0.25% increase, although the question remained as to how long the increases would be maintained this year. Due to the expectation, bitcoin fell 3.9% on Tuesday.
The fact that Powell pointed out that monetary policy can lead inflation to a downward trend was instrumental in investors pushing both bitcoin and stocks higher. The Nasdaq received a 1.9% boost, while the S&P 500 appreciated 1% after the Fed announcement.
The bitcoin price shortly before the announcement was USD 22,992, while at the time of writing this article its price is USD 23,560, which represents an increase of 2.5% in less than three hours.
Bears Were Caught Completely Unprepared
Open interest for the February 3 options expiration is $1 billion, but the actual figure will be lower as bears were surprised after the 9.6% rally on January 20-21.
The call-to-put ratio of 1.61 reflects the imbalance between the open interest to buy (call) of USD 640 million and the put options of USD 400 million.
If the Bitcoin price sustains above $23,000 at 8:00 a.m. m. UTC on February 3, less than $7 million in these put options will be available. This difference occurs because the right to sell Bitcoin at $22,000 or $23,000 is worthless if BTC trades above that level at expiration.