Bitcoin rallies on Powell remarks as analysts say crypto cycle thesis remains intact

Bitcoin climbed modestly on Wednesday evening after Jerome Powell, the Federal Reserve's chair, delivered remarks that markets read as a signal the central bank might finally be done raising rates. The digital currency had initially fallen on the news of another quarter-point increase, but by 6:23 p.m. it was trading around $28,800, up roughly 1 percent over the previous day. Ethereum moved in tandem, gaining a similar percentage to reach $1,870. The broader cryptocurrency market held steady at a total valuation of $1.23 trillion.

Powell's message was mixed enough to require interpretation. The Federal Open Market Committee had approved the rate hike as expected, but the chair's language suggested the Fed believed it had likely reached its ceiling—that rates might stay elevated for some time, but the days of consecutive increases could be behind them. Analysts at XP Investimentos saw in his remarks a clear intention to pause, though one deliberately noncommittal, leaving room for the committee to reassess as new data arrived. Powell was emphatic that rate cuts would not be appropriate this year if inflation projections held, and he took pains to reassure markets that the banking system remained solid and resilient.

For cryptocurrency investors, Powell's focus on inflation control and his dismissal of near-term rate relief removed some of the oxygen from a narrative that had buoyed Bitcoin for months. The digital asset had surged partly on fears of systemic banking collapse in the United States, a story that gained urgency after regional bank failures earlier in the year. Now that narrative seemed less urgent. Luiz Pedro Andrade, a crypto analyst at Nord Research, observed that Powell's insistence on fighting inflation to a 2 percent target amounted to a brake on the crypto market. The rally Bitcoin had enjoyed in 2023 had been built partly on the idea that the financial system might break; Powell had effectively taken that scenario off the table. Institutional investors, Andrade noted, would likely stay on the sidelines as long as rates remained high. The result would be a stagnant medium term, with few large price movements driven by American institutional capital.

José Artur Ribeiro, an economist and CEO of the Coinext crypto exchange, agreed. Investment funds were pouring money into fixed-income securities and showed no sign of withdrawing anytime soon. Bitcoin would likely remain range-bound until interest rates began to fall. Yet crypto analysts held to a longer view. Even if Powell's hawkishness dampened near-term sentiment, the underlying problems that had triggered banking stress would not disappear. The Fed's single-minded focus on bringing inflation down to target would probably trigger more collapses like the First Republic Bank failure, which could continue to support Bitcoin as a hedge against financial instability.

The real catalyst, many believed, lay further ahead. Bitcoin's halving—a programmed reduction in the rate at which new coins enter circulation—was scheduled to occur in roughly a year. This event had historically preceded major rallies, and analysts expected the anticipation alone to begin shifting investor behavior as the date approached. Helena Margarido, a crypto analyst at Monett and COO of Kodo Assets, framed the situation as a collision between two different time horizons. High rates were a short-term headwind, but Bitcoin's long-term thesis as an antifrágil asset—one that strengthens under stress—remained intact. The halving cycle, she argued, operated on its own schedule, independent of Fed policy.

Mining economics reinforced this view. The cost to mine a new Bitcoin stood around $25,000, meaning the asset had traded at a discount for much of the previous year as risk-averse investors fled to American fixed income. But that dynamic was changing. Miners, anticipating the halving, were beginning to accumulate rather than sell. Ribeiro noted that as the event drew closer—perhaps seven or eight months out—expectations would naturally intensify. The turning point for investors seemed near, even if Powell's comments suggested the Fed would keep rates elevated well into 2024.

Yet retail and institutional behavior told conflicting stories. In regulated markets, investors had been steadily exiting crypto positions. The top twenty crypto-focused funds and exchange-traded products had suffered combined net outflows of nearly 100 million reais in December 2022, a figure that ballooned to 140 million reais in January despite Bitcoin's 70 percent rally that month. By the end of March, when Bitcoin had become the world's best-performing asset for the quarter, these regulated products had registered net losses exceeding 108 million reais. Some analysts suggested investors had seized the opportunity to exit at a profit. But in unregulated markets, the picture reversed. Stablecoins flowing into crypto exchanges hit $6.77 billion in March, the highest level since May 2022, just before the market's collapse. Brazilians, too, were buying more crypto. Imports of digital assets had reached $1.4 billion in the first two months of the year, 40 percent higher than the same period in 2022. The divergence suggested that while institutional capital remained cautious, retail and international interest in crypto was quietly building.