Key Points
- The Federal Open Market Committee’s interest rate decision could influence Bitcoin and other cryptocurrency prices.
- Most cryptocurrencies are trading within a tight range prior to the Committee’s decision.
The decision on interest rates to be made by the Federal Open Market Committee could potentially impact the prices of Bitcoin and other cryptocurrencies.
Cryptocurrencies Anticipate Fed Decision
Ahead of this decision, most cryptocurrencies have been trading within a narrow range. For instance, Bitcoin was trading at $66,300, a decrease from the week’s high of $70,000, while Ethereum was valued at $3,320.
The total market cap of all cryptocurrencies experienced a minor decline of 0.78%, settling at $2.38 trillion. Even top-performing altcoins like Mog Coin, Kaspa, and Ripple saw increases of less than 6%.
Expected Outcomes and Implications
Economists predict that the Federal Reserve will maintain interest rates between 5.50% and 5.25% in this meeting. According to data from Polymarket, only a small fraction (4%) of participants in the $2.4 million pool anticipate a reduction of rates by 25 basis points.
This meeting holds significance as the bank might provide guidance on when rate cuts will commence. If the Fed indicates a September cut due to falling inflation and rising unemployment, it could impact the market. Alternatively, the bank could maintain a data-dependence stance, closely watching upcoming non-farm payrolls data and the next consumer price index report for labor market cues.
Impact on Bitcoin and Other Cryptocurrencies
The actions of the FOMC impact all assets, including cryptocurrencies. As an example, in 2020 and 2021, Bitcoin and other altcoins experienced a surge as the bank reduced rates to zero. However, they saw a reversal in 2022 when the bank initiated its benchmark rates.
Bitcoin and other coins could possibly benefit when the Fed starts cutting interest rates as investors have invested trillions in low-risk assets. With over $6.1 trillion accumulated in money market funds, these assets might become less appealing when interest rates begin to decline. This could potentially lead to a shift towards riskier assets like stocks, cryptocurrencies, and Bitcoin ETFs.
However, the impact on cryptocurrencies might be limited in this meeting as the rate pause has already been factored in. Previous Fed decisions have not had a significant impact on Bitcoin prices.
