The Federal Reserve’s policy decision could be a key test for bitcoin’s 40% rally this year, which is part of a broader trend of growth in the crypto, stock and bond markets.
The market has seen a rise in recent weeks due to expectations that the Fed will calm higher inflation in the form of slower interest rate hikes and possible cuts.
Will bitcoin lose momentum?
While the Federal Reserve is expected to hike by a quarter point this Wednesday, Chair Jerome Powell may insist that policy will remain restrictive to cushion prices. This could have a negative impact on the $250 billion run-up in total crypto market value over the past four weeks. Traders should prepare for potential volatility when Powell speaks.
Vetel Lunde, a senior analyst at Arcane Research, believes that the crypto market is overly optimistic about the Fed’s bullish pivot. Lunde said slow momentum, strong technical resistance and expectations of a hawkish Federal Open Market Committee (FOMC) could lead to a “bad February.”
Arcane analyzes bitcoin’s swings around the briefings following the Federal Reserve’s recent decision. The firm found that the trend of massive FOMC induced volatility in BTC is declining. However, the firm advised traders to be cautious when Powell spoke.
Smaller coins such as Avalanche and Dogecoin posted losses in the countdown to the Fed decision. Meanwhile, bitcoin was up less than 1% and was trading at $23,118 as of 9:44 CT.
The Fed downshift was one of the key drivers behind January’s digital asset gains. The market also believes that the worst of the crisis on the collapsed FTX exchange is behind us, according to Jean-Marie Mogenetti, CEO of CoinShares International Ltd.
Crypto-related stocks have made a comeback from last year’s decline. Shares of US-based exchange Coinbase Global Inc soared 65% in January, the best monthly performance since the company’s listing in 2021. An index of crypto-mining equities saw an unprecedented 77% increase this month.
The digital asset rally of 2023 has reduced the one-year decline in the gauge of the top 100 tokens to 43%. A LendingTree survey found that of the 28% of Americans who held crypto, 40% sold it at a loss. Despite this, the overall trend suggests that the market is confident about the future of the digital asset. Traders should prepare for possible volatility in the coming weeks.
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