How the Fed’s Decisions Impact Bitcoin & Altcoins

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Bitcoin (BTC) lost over 7% to $56,555 on Wednesday, its lowest price since late February, according to data from CoinMarketCap. The decline came as investors pulled likely funds from cryptocurrencies ahead of the Federal Reserve‘s interest rate decision.

The Federal Open Market Committee (FOMC)’s interest rate decision later today is not expected to introduce any changes, according to Reuters. However, investors are beginning to believe that the central bank may not cut rates at all this year.

The CME FedWatch Tool indicates that a mere 4.4% of economists predict a rate cut — the first in over a decade—while a dominant 95.6% anticipate rates holding steady between 525 and 550 basis points.

This perception is damaging to interest rate-sensitive assets like cryptocurrencies, emerging market stocks and bonds, and even commodities. Higher interest rates can reduce the amount of money available for investing as borrowing costs increase.

For cryptocurrencies, which are often subject to high levels of speculative trading with leverage, increased borrowing costs can lead to reduced trading volumes and downward pressure on prices.

Key Takeaways

  • Bitcoin’s price fell over 7% to $56,555, marking its lowest point since late February, amid investor anticipation of the Federal Reserve’s interest rate decision.
  • Despite expectations for stable interest rates, market sentiment is shifting towards no rate cuts this year, which will impact risk-sensitive assets like cryptocurrencies.
  • Analysts have observed that cryptocurrency prices, especially Bitcoin, typically decline before FOMC meetings, with potential rebounds post-meeting.
  • Bitcoin’s recent downturn is part of its worst monthly performance since 2022, driven by profit-taking following significant price increases.
  • The broader impact of the cryptocurrency downturn extends to related stocks, with notable declines in shares of companies like Coinbase, Riot, and Marathon Digital in U.S. premarket trading.

Bitcoin Typically Drops Before FOMC Meeting

While some believe Bitcoin and other risk assets are dropping because of lingering increased borrowing costs, according to some analysts.

Popular analyst Michael van de Poppe, also known as CryptoMichNL on X, formerly Twitter, says it is typical for Bitcoin to drop before FOMC meetings.

He wrote in an April 30 post on X:

“Bitcoin usually drops pre-FOMC and rotates back up after, I think we’ll copy that price action again.”

In a more recent post, he added that Bitcoin appears to be approaching the end of its correction phase.

With a 20% decline from its recent highs, there may still be some downside to come.

“If the correction continues, then I think the green zones between $56-58K are essential to watch,” he wrote.

Powell’s “Rhetoric” Continues to Spread Risk-Off Signal

In a recent note, Ruslan Lienkha, chief of markets at YouHodler, a Swiss-based Web3 fintech platform, also said he expects the rate to remain unchanged due to persistent elevated inflation.

However, he believes that Powell’s rhetoric may continue to spread a risk-off signal across markets, intensifying selling pressure in the crypto market. The growth of gold since the beginning of the year may also make investors more cautious about risk assets like cryptocurrencies.

“Further inflation trajectory will define monetary policy and markets’ behavior despite some positive internal pro-growth factors in the crypto industry.”

Additionally, he noted that the economy has been under pressure from high rates for some time, with certain industries accumulating problems and stress.

The recent selling pressure in the U.S. financial market indicates adjusted expectations regarding the number of rate cuts anticipated by the end of the year, making future market growth more challenging.

Bitcoin Registers Worst Monthly Performance Since 2022

Bitcoin’s value fell nearly 16% in April, marking its worst monthly performance since late 2022, as investors took profits from a previous rally that had pushed prices above $70,000.

The leading cryptocurrency is currently 22% below its March record of $73,803, which technically places it in a bear market. However, it is still up 35% year-to-date and has doubled in value compared to the same period last year.

The influx of billions of dollars into newly established exchange-traded funds (ETFs) since January has played a significant role in Bitcoin’s performance, attracting investors who have witnessed substantial price appreciation on their shares.

Matteo Greco, a research analyst at Fineqia, told Reuters that the recent downtrend in Bitcoin can be attributed to profit-taking by investors who entered the market during the downturns of 2022 and 2023, as well as ETF investors who observed significant price appreciation after joining the market in early 2024.

The decline in cryptocurrencies has also affected related stocks. In U.S. premarket trading, shares of crypto exchange Coinbase fell 4.6%, while mining companies Riot and Marathon Digital dropped 4.2 and 4.3%, respectively.

The Bottom Line

The price of Bitcoin has taken a hit amid increasing investor caution ahead of the Federal Reserve’s interest rate decision and has seen its worst month since late 2022.

While some analysts, like Michael van de Poppe, suggest potential rebounds after FOMC meetings, others say Powell’s rhetoric may continue to spread a risk-off signal across markets.

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