Bitcoin Gains 13% After Fed Rate Hike, Thanks to Fund Buying Spree

Bitcoin's price has climbed approximately 13% since the Federal Reserve increased interest rates on September 16, with Wall Street funds accounting for the bulk of the purchases. Three factors drew them back in.

The negative developments had already been priced in, higher rates no longer frightened buyers, and the technical chart indicated potential for further gains.

Negative News Was Already Reflected in Bitcoin's Price

On September 11, rate futures assigned a 69.6% probability to a rate hike. The CLARITY Act, a bill aimed at establishing US cryptocurrency regulations, failed to pass the Senate on September 15 by a 50-49 margin. Bitcoin fell 3.3% that day, settling near $75,600, which marked the low of the right shoulder in a technical pattern.

The following day, the Fed raised its target range to between 3.75% and 4%.

Reasons Behind the Funds' Return

The first reason is that the period of uncertainty ended. Funds that had seen significant outflows ahead of the vote no longer had a decision to anticipate.

The second reason is that higher rates ceased to alarm buyers. The two-year Treasury yield, which reflects the interest the US government pays on two-year borrowing, rises when traders anticipate further Fed increases and falls when they expect cuts. It reached a September peak of 4.76% on September 18 and 21, which coincided with Bitcoin's two biggest upward trading sessions. Tom Lee of Fundstrat argued that the Fed cannot become more hawkish from this point.

The third factor is room for upward movement. The UTXO Realized Price Distribution (URPD) indicates the price at which each Bitcoin was last transacted, providing a rough picture of where holders acquired their coins. The price band around $87,100 contains 1.34% of the supply, while the band near $88,400 holds 0.46%.

Fewer coins purchased at those levels mean fewer holders waiting to sell at breakeven.

Two Sessions Drove the Rally

Spot Bitcoin ETFs saw inflows of $2.31 billion over September 17, 18, 21, and 22. Bitcoin rose 5.9% on September 18, when funds purchased $433 million, and 6.7% on September 21, when they bought $999 million. Those two sessions accounted for nearly all of the 13.2% gain through September 22.

The September 21 surge also caught short sellers, with $262 million in Bitcoin short positions liquidated within an hour. Closing a short position involves buying, which adds to the demand from funds.

Bitcoin's Breakout and What It Targets

That demand pushed Bitcoin out of an inverse head and shoulders pattern that had been forming since February, characterized by a deep middle low flanked by two shallower ones. The price broke above the neckline on September 21, accompanied by the heaviest daily volume since August 21. The subsequent pullback has been modest, with a 0.5% decline on September 22 compared to the 3.3% drop on September 15.

The first resistance level is $86,935, a price Bitcoin has touched but not closed above. A daily close above that level would open the way to $89,825, then $93,940. The pattern's measured move suggests a gain of approximately 43% from the neckline, targeting $117,247, which is within 7% of the all-time high record of $126,080.

Support below is more substantial. The price band near $84,569 holds 2.92% of the supply, the largest concentration within 20% of the current price, just above the technical level of $84,045.

A daily close below $84,045 would bring the neckline near $82,000 back into consideration.

Analyst’s View: Funds continued buying even with the two-year Treasury yield near its September high, indicating that the rate hike no longer worries them. If inflation data for August, due on September 30, does not revive that concern, a daily close above $86,935 keeps the 43% target viable.