Wednesday’s Federal Open Market Committee (FOMC) will shed light on the US inflation figures and its interest rate decision.
Interest rates have been at a 23-year high of between 5.25% and 5.5% since last July, aiming to counter the rising cost of living. Whether the FED decides to hike the rate to combat inflation or cut it to stimulate the economy, the decision will have a ripple effect on all markets.
Amidst this uncertainty is Bitcoin’s volatility. It dropped dramatically in the last six hours, from $70K to $67.2K, translating into a 1.79% weekly decline. The FED’s decision could determine whether Bitcoin ($BTC) breaks resistance and soars, or gets dragged down by a risk-averse market.
Crypto Bull Run Stumbles as FED Decision Looms Large
$BTC hit its all-time high of $73K in March, driven by the upcoming halving and $BTC ETF inflows. The approval of $BTC ETFs opened the door for crypto adoption among traditional investors, allowing them to gain exposure to crypto without directly trading it.
However, analyst predictions of $BTC reaching $100K post-halving crumbled in the face of tightening government regulations and an economic downturn.
The next 36 hours will determine the $BTC price trend for the foreseeable future, as the FED’s interest rate decision will directly impact investor risk appetite.
A rate hike, aimed at curbing inflation, could trigger a risk-off sentiment, leading investors to pull out of volatile assets like crypto. Conversely, a rate cut could fuel the current bull market.
Moreover, $BTC sets the direction for the broader market, so we may see a domino effect on altcoins.
Other cryptocurrencies have already followed suit. In the past 24 hours:
Only nine out of the top 100 crypto by market cap experienced price increases (and insignificant ones at that) in the past 24 hours despite an overall bullish market sentiment this month.
FED Sends Mixed Signals, Markets Are Sceptic
In May, FED representatives signaled combating inflation in the US may take longer than expected. Adding to the concern, the Central Bank Chief pointed out we may be entering a stagflation period, where inflation persists alongside economic stagnation.
In response, FED’s Investment Strategy Head Scott Helfstein promised to hold interest rates steady, yet the upcoming FOMC decision might contradict this statement.
On a better note, the FED’s recent projections show inflation is slowly decreasing, easing fears of accelerating interest rates. The median projected inflation rate is expected to fall from approximately 2.3% to 2% by 2026, and unemployment from 4.1% to 4%.
However, the 30-day FED funds futures pricing data analysis suggests a 99.4% probability of the rates remaining at the same level. To compare, the FEDWatch Tool forecasted an 8.8% probability of a rate drop in July and an over 50% probability in September.
While the FED’s projections are positive, traders remain skeptical and await FOMC’s meeting outcome.
The FED walks a tightrope: an interest rate hike could lead to investors fleeing volatile assets and hinder economic growth, but stubbornly high inflation could erode investor interest in traditional markets. In the latter case, investors might see crypto as a hedge, continuing the current bull run.
Final Thoughts
In these uncertain times, diversification is key for risk aversion. Crypto traders hope for an interest rate cut to fuel the bull run, but only time will tell if their gamble pays off.
As always, we remind you to DYOR and follow industry news. The crypto market is a fickle one, and price direction can change in the blink of an eye.
