How Will Wednesday’s FED Interest Rate Decision Affect Bitcoin and Cryptocurrencies? Analysis Company Explained

Bitcoin (BTC) has made a significant recovery, returning to around $65,000 after hitting a recent low on Tuesday. This recovery comes in anticipation of the upcoming Fed meeting, which ends on Wednesday and is expected to have a significant impact on the cryptocurrency market.

In recent weeks, Bitcoin has hit an all-time high, reaching just under $74,000. However, it fell sharply on Thursday and was down more than 15% below $63,000 by early Tuesday. This decline created a domino effect and pulled other digital assets down.

According to Vetle Lunde, senior analyst at digital asset analysis firm K33 Research, “The market unanimously expects interest rates to remain stable, but will pay close attention to adjustments in the dot plot as reductions may be delayed against the backdrop of persistently high inflation.” The dot plot expresses the Fed committee members’ view of interest rates over the coming year and gives investors an idea of policymakers’ expectations.

The decline in Bitcoin’s price coincided with disappointing flows into US-listed Bitcoin ETFs in recent days. Lunde suggests this may be due in part to investors’ reluctance to take risks before the conclusion of the Federal Open Market Committee (FOMC) meeting.

A more hawkish stance by the FED may reduce investors’ appetite for risky assets such as cryptocurrencies, putting pressure on prices and prolonging the correction. “This week’s Fed decision poses a risk, along with strong U.S. economic data and concerns about a less investor-friendly policy stance due to inflation,” said Joel Kruger, market strategist at LMAX Group.

Kruger added that although correlations between crypto and traditional assets are low, a risk-off sentiment resulting from the Fed decision could spread to the crypto market. Therefore, the crypto market and investors will closely monitor the outcome of the FED meeting.

*This is not investment advice.

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