For the last year cryptocurrencies have traded increasingly like equities, making the U.S. central bank’s monetary policy one of the most important drivers of the crypto market’s performance.
But crypto analysts and traders aren’t expecting market-shaking moves to follow the Federal Reserve’s policy-making meeting Wednesday, largely because the market has anticipated a rate hike of 50 basis points for a month.
Nonetheless, if Fed Chair Jerome Powell’s tone turns more hawkish or dovish than expected, there could be notable movement in crypto prices. A more aggressive stance could push crypto lower.
“There’s been falling momentum in retail and institutional interest around crypto since the beginning of the year,” Edward Moya, senior market analyst with Oanda, told Yahoo Finance. “Bitcoin and other risky assets will probably continue to consolidate until markets show more confidence that we’ve reached peak Fed hawkishness.”
John Kramer, a crypto trader with GSR, doesn’t anticipate Bitcoin to break its 30-day trading range, but what he’s watching is comments about the Fed’s inevitable balance sheet runoff. Until March, the central bank was buying U.S. Treasuries and agency mortgage-backed securities to help boost financial markets.
For the past month, Bitcoin has traded within a range of $46,000 and $37,000 per coin, sitting Tuesday afternoon at $37,732, or 45% off its all-time peak in early November 2021.
“I would be shocked to see the crypto market drop substantially by the close of the stock market Wednesday. Longer term, there is also strong buyer support for Bitcoin at the $30,000 and $28,000 level. It would have to take something really spooky, a significant change of course to shake people out at those levels,” Kramer said, adding that he expected to see some intraday relief rally.
Mike McGlone, a senior commodity strategist with Bloomberg Intelligence, agreed that all risk assets could see a rally Wednesday, but Bitcoin’s performance will mostly be “trader noise,” similar to stocks.
Looking further, McGlone said he anticipated Bitcoin to continue to decline with other risk assets such as the stocks, but ultimately — in this cycle — he expects Bitcoin to come out ahead.
“The bottom line is that one of the most rapidly growing assets in recent years are cryptocurrencies so they have the most to lose, despite that Bitcoin has been showing divergent strength,” he said, noting Bitcoin’s year-to-date drawdown compared with the Nasdaq.
As of Tuesday afternoon, both the Nasdaq Composite and Bitcoin have sold off 20.6% for the year.