Bitcoin price rebounded sharply from recent losses, tracking a broader rally in risk-driven markets after the Federal Reserve kept interest rates steady and signaled that rate cuts were coming in 2024. The cryptocurrency has since stabilized between the $66,000 and $67,000  mark. 

Bitcoin was trading at $66,436.8 by 12:05 ET (16:05 GMT) after sinking as low as $60,000 on Wednesday. The world’s largest cryptocurrency was walloped by a heavy bout of profit-taking before the Fed, after it raced to record highs last week.

The Wednesday decline was driven by profit-taking after last week's surge and leveraged bets on rising prices, leading to a more than 15% drop in overall capitalization.

Weakness in the dollar aided Bitcoin’s recovery, as the greenback fell sharply from two-week highs after the Fed. This trend also supported the broader cryptocurrency market, with world no.2 token Ethereum rising 10% on Thursday to $3,454.79.

The price recovery did not come as a surprise, Goldman Sachs analysts noted, “especially if one considers the speed at which we reached the mid-March ATH and the elevated perpetual futures funding rates that accompanied it as investors looked to put on leveraged longs on crypto retail exchanges.”

Bitcoin thrives in a low-rate environment

The Fed stuck to its forecast of a 75 basis point reduction in interest rates in 2024, while Chair Jerome Powell also flagged more, albeit slow progress towards the Fed’s 2% annual inflation target.

Lower interest rates bode well for Bitcoin, which benefits from a high-liquidity environment that encourages speculative investments. The token’s bull run in 2021 came largely on the back of ultra-low interest rates in the wake of the COVID-19 pandemic.

Bitcoin is already up more than 50% so far in 2024, after a stellar, over 100% rally through 2023. The token’s latest gains were driven by increased capital inflows after the approval of spot exchange-traded funds for U.S. markets earlier in 2024.

The spot ETFs make investing in Bitcoin much simpler for traditional investors. This ease of access, coupled with potentially lower interest rates, could prime Bitcoin for a rally later in 2024.

Analysts expect the token to cross the $100,000 level by end-2024.

But Bitcoin and the broader crypto industry still has to grapple with a marked loss of faith, following a string of high-profile frauds and scandals over the past two years.

The token’s perceived volatility also makes it appear less attractive to risk-averse investors.

Meanwhile, retail activity has cooled over the past couple of days, but Needham analysts expect strong participation from retail investors in Q1 2024, which should bode well for crypto-related stocks Coinbase (NASDAQ:COIN) and Robinhood (NASDAQ:HOOD).

“We believe the sell-side is missing the extent to which retail has come back into the crypto space, and is overstating institutional participation on the back of recent bitcoin ETFs.”

[Ambar Warrick contributed to this article]