Bitcoin recovers over $21,000 as Fed pledges to slow inflation; traders remain cautious

After Friday's opening, European and Asian financial markets increased, resulting in a rise in the value of Bitcoin.

The comeback came after a historic nine-day drop in which the bitcoin price fell from $31,000 in early June to little over $20,000. Bitcoin has dropped over 70% from a lifetime high of over $69,000 in November.

Hong Kong's Hang Sang climbed 1.1 percent, the Shanghai Composite gained almost 1 percent, Germany's DAX gained 1.41 percent, and the Stoxx Europe 600 gained 1.22 percent. Index futures in the United States rose as well.

Markets recovered as traders examined the long-term effect of the Federal Reserve's decision on Wednesday. Fed Chair Jerome Powell stated that the Fed remained dedicated to lowering inflation and raised interest rates by 75 basis points, prompting a temporary relief bounce in global and cryptocurrency markets.

"Although a 50 basis point rise had been expected for several weeks, last Friday's inflation statistics led the market to price in a more aggressive hike with massive sell pressure," said Marcus Sotiriou, an analyst at crypto broker GlobalBlock, in an email. "As a result, a 75 basis point raise was priced in for the short term, leading to a rally."

However, Sotiriou noted that if this week's rise cools, there may be further downside in the coming months.

"This is related to fears about an impending earnings recession as a result of the Federal Reserve's aggressive monetary policy." According to Bank of America, stagflation worries are at their highest since 2008, and profit forecasts are also at their lowest since the GFC (Global Financial Crisis)," Sotiriou added. The bad atmosphere may result in a "increase in foreclosures and bankruptcies."

Susannah Streeter, senior investing and markets analyst at Hargreaves Lansdown, agreed.

In an email to CoinDesk, Streeter said, "There is unlikely to be lasting reprieve from the sinking sensation that has gripped financial markets this week." "After the initial surge of confidence that the Federal Reserve was going to get a handle on inflation with the 0.75 percent rate hike, the mood on Wall Street soured as fears rose that the price spiral would be an even harder nut to crack in the absence of more forceful hikes."

Some, like as Alex Kuptsikevich, a FxPro senior market analyst, remain gloomy on bitcoin in the immediate term.

"The negative focus remains on the $20,000 level, the previous 2017 top." "BTC has never gone below the prior bull cycle's peak in previous cycles," Kuptsikevich stated in an email.

The analyst went on to say that the uncertainty surrounding cryptocurrency firm Three Arrows Capital might lead to contagion concerns as speculation about "its probable insolvency" grows. As previously reported, the fund faced at least $400 million in liquidations after failing to fulfill collateral requirements on its levered holdings.

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