Patient Bitcoin investors will have to maintain their composure at least for another quarter, as the Federal Reserve’s outlook for interest rate policy may dampen what could have been a stronger month for cryptocurrency. Bitcoin has had an interesting but difficult year. Coin Metrics reports that the flagship cryptocurrency has risen by more than 60% this year. This is thanks to the strong performance in the first quarter. Since then, not much has changed. Bitcoin has fallen about 5% from April 1. Any gains made in the past year, such as Ripple winning the SEC lawsuit against them, Grayscale winning its SEC case, or several financial giants entering their names into a hat to create a bitcoin ETF, have not held. Bitcoin is expected to continue its downward trend in the fourth quarter, and while there may be some upside potential, it could be limited. Greg Magadini is the director of derivatives for crypto data provider Amberdata. He said that if we see positive ETF developments I can see us returning to the high of the range we saw in this year. Since March, Bitcoin has been trading in a tight range between $25,000 and $30,000. The approval of a bitcoin ETF is seen as a major event that could push bitcoin to new heights and bring back liquidity and trading volume into crypto. He said that the backdrop of a hawkish Fed is still dragging risk assets down. “A crypto-specific catalyst could bring us to the top, but macro is still a drag.” This is likely to prevent us from reaching new highs for the year. The Federal Reserve paused rate increases last week at the end of its September policy meeting. However, it indicated that rates could remain higher for longer than originally thought. Rob Ginsberg is a chart analyst with Wolfe Research. He said that he would not be surprised if bitcoin broke below $25,000 – a critical support level for cryptocurrency – when rates reach new cycle highs. Investors can expect a “violent rotation” back into risk when the Fed pivots to rate hikes. Bitcoin is still on track to end September, which is usually its worst month, with a gain of more than 3%. This would be its first month of the quarter. CoinGlass says that it usually ends the month with a negative value in eight out of the past 10 years. It is still on track for a 11% drop in the third quarter. This quarter has historically been weaker for cryptocurrency. This would be its sixth loss in the third quarter of 11 years. Bitcoin is about to enter a period of historically positive growth. In eight of the 10 previous Octobers, the cryptocurrency posted a gain. It has also seen a gain during the fourth quarter in six of the 10 years. Interest rates are to blame. In a time when the Fed continues to raise interest rates, and after a period in which its rate hikes drove bitcoin’s price, inflation data and monetary policies have not been as important drivers of bitcoin. Instead it has been industry-specific catalysts. This influence could be a factor in Q4 after the Fed hinted at higher interest rates for a longer period of time last week. Callie Cox is an analyst with eToro. “The Fed put markets and economy into conservation mode, forcing investors to make tough choices about their money. It reminded us last weekend that they may never switch back to innovation,” she said. “People are more worried about protecting their portfolios rather than investing in the latest, hottest thing in crypto.” This has weighed down on trading volumes and liquidity, as well as speculation in the industry. Higher rates may continue to impact ether more, as it is the digital tech play and bitcoin the digital gold. Ether has been up half as much in 2023 as bitcoin and is on track to report a loss of more than 13% for the first quarter. Amberdata’s Magadini stated that holding non-yielding assets like bitcoin or gold could become “less attractive” as rates rise. BTC.CM= Ethereum.CM=YTD mountain Bitcoin may have seen its biggest gains for the year but there is still room for some limited upsides in Q4. Cox says that this could be a good thing for bitcoin. It is in the midst of a transition from speculative investments to quality ones. Bitcoin is seen as a risky asset by traditional investors who compare it to stocks and bonds. However, for crypto-focused investors, bitcoin can be a stable store of value, and a hedge, against the traditional financial systems, which have shown cracks in the past year. Cox stated that there is a large crowd on both sides – “that’s the reason bitcoin has risen 60% in an year when interest rates have been raised so aggressively by the Fed.” Cox said that Bitcoin is now at a point where it may struggle in the technical sense, but you might continue to see money flowing into popular cryptocurrencies due to a focus on quality. “That is the story of the Fourth Quarter: How does the desire for quality clash with the desire for speculation?” Interest rates will likely remain high. “