Consequences Of The Fed Decisions For Bitcoin and Altcoins

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According to data from CoinMarketCap, Bitcoin (BTC) fell over 7% to $56,555 on Wednesday, its lowest level since late February.

A possible reason for the price decline was the withdrawal of investors from cryptocurrencies in the run-up to the Federal Reserve’s interest rate decision.

The US Federal Open Market Committee’s (FOMC) interest rate decision is not expected to bring any changes, according to Reuters .

However, investors suspect that the central bank may not cut interest rates at all this year.

The CME FedWatch tool shows that only 4.4% of economists predict a rate hike – the first in more than a decade. 95.6% assume that interest rates will remain stable between 525 and 550 basis points.

This assessment hurts interest rate-sensitive assets such as cryptocurrencies, emerging market stocks and bonds, and even commodities. Higher interest rates may reduce the amount of money available for investment due to rising borrowing costs.

For cryptocurrencies, which are often traded in a highly speculative and leveraged manner , increased borrowing costs can lead to a decrease in trading volume and downward pressure on prices.

Key findings

Bitcoin prices fell more than 7% to $56,555, hitting their lowest level since late February in anticipation of the Federal Reserve’s interest rate decision.
Despite hopes for stable interest rates, the market does not expect a rate cut this year, which will impact risk-sensitive assets such as cryptocurrencies.
According to analysts, cryptocurrency prices, especially Bitcoin, typically decline before FOMC meetings and can recover afterwards.
Bitcoin’s recent decline is part of its worst monthly performance since 2022, driven by profit-taking after significant price increases.
The broader impact of the cryptocurrency downturn also extends to related stocks, with notable losses for companies like Coinbase, Riot and Marathon Digital in premarket trading in the US.

Ordinary BTC crash before FOMC meeting

Some believe Bitcoin and other risk assets are falling because of persistently high borrowing costs, according to some analysts.

Renowned analyst Michael van de Poppe, also known as CryptoMichNL on X, formerly Twitter, believes that Bitcoin typically collapses before FOMC meetings.

On April 30 , he wrote in a post on

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

With a 20% decline from recent highs, there could still be some bearishness to come.

“If the correction continues, then I believe the green zones between $56-$58K are important to keep an eye on,” he explained.

#Bitcoin is at the end of the correction.

It's already down 20% from the highs and we'll have some more downside to happen from here.

If the correction continues, then I think the green zones between $56-58K are essential to watch.#Altcoins to bounce before. pic.twitter.com/4Mu3NA1HSg

— Michaël van de Poppe (@CryptoMichNL) May 1, 2024

Powell’s “rhetoric” continues to send a risk-off message

Ruslan Lienkha, Chief of Markets at YouHodler, a Swiss-based Web3 fintech platform, also believes in a recent press release that the interest rate will remain unchanged due to persistently high inflation.

However, he believes Powell’s rhetoric could continue to spread a risk-off signal in the markets and increase selling pressure in the crypto market.

The rise in gold prices since the beginning of the year could also make investors more cautious about risk assets like cryptocurrencies.

“The further path of inflation will determine monetary policy and market behavior, despite some positive internal growth factors in the crypto industry.”

In addition, he pointed out that the economy has been under pressure from high interest rates for some time and that certain sectors are experiencing problems and stress.

Recent selling pressure in the US financial market suggests that expectations for the number of interest rate cuts expected by year-end have been adjusted, complicating future market growth.

Bitcoin’s worst monthly performance since 2022

In April, Bitcoin’s price fell nearly 16%, posting its weakest monthly performance since late 2022, as investors took profits from a previous rally that had pushed the price above $70,000.

The leading cryptocurrency is currently 22% below its March record high ($73,803), technically putting it in a bear market .

Still, it is 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 launched exchange-traded funds (ETFs) since January has played a major role in Bitcoin’s price performance, attracting investors who have seen significant increases in the value of their holdings.

Matteo Greco, research analyst at Fineqia, told Reuters that Bitcoin’s recent downtrend was driven by profit-taking by investors who entered the market during the downturns in 2022 and 2023, as well as by ETF investors after they entered observed a significant price increase in the market at the beginning of 2024.

The slump in cryptocurrencies has also impacted related stocks.

In premarket US trading, shares of crypto exchange Coinbase fell 4.6%, while mining companies Riot and Marathon Digital fell 4.2% and 4.3%, respectively.

Conclusion

Bitcoin price has suffered a setback amid increasing investor caution ahead of the US Federal Reserve’s interest rate decision, suffering its worst month since the end of 2022.

While some analysts, like Michael van de Poppe, point to a possible rebound after the FOMC meeting, others say Powell’s rhetoric could continue to send a risk-off signal across markets.