What the Fed’s rate choice, outlook could mean for crypto markets

The central bank’s rhetoric around broader policy trajectory is more likely to impact crypto prices than its latest rate decision, market observers say


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The Federal Reserve’s decision to either raise or pause rates on Wednesday may not significantly impact the crypto market, according to industry watchers. However, insights from the US central bank about its overall view of the economy might.

The Fed has continuously raised the federal funds rate amid a year-plus long battle to fight inflation. It raised the federal funds rate, which stood at 0.5% in March 2022, to 5.5% by July — resuming an increase that month after a one-time rate pause in June.  

The Fed is likely to keep the rate steady on Wednesday as it tries to “maintain the balance between possible recession and high inflation,” said Ruslan Lienkha, chief of markets at Web3 platform YouHodler.

Lucas Kiely, chief investment officer of digital wealth platform Yield App, said in a statement that such a decision could mean the Fed is simply pausing “to catch its breath” or has reached a point where further rate hikes are off the table.

Read more: Fed resumes raising rates, crypto and equities stay flat

“The latter could mark the end of a post-pandemic economic war effort and — perhaps — the beginning of a global market recovery,” Kiely added.

How rhetoric could impact on crypto markets 

Some market observers said the Fed’s Wednesday decision to hike rates, or not, likely won’t significantly affect the crypto market. 

Many investors expect no increase in interest rates and have priced that in, Fineqia International Research Analyst Matteo Greco said in a Sept. 16 research note. 

Lienkha told Blockworks that only rate cuts, which he said are not possible right now, would significantly impact crypto prices. He expects bitcoin — trading at about $27,220 at 1:45 pm ET on Tuesday — to stay in the $25,000 to $30,000 range.

But James Butterfill, head of research at CoinShares, said nuances from the press conference could move crypto markets.

Fed Chair Jerome Powell is set to speak at 2:30 pm ET on Wednesday after a two-day meeting of the Federal Open Market Committee (FOMC).

“If the Fed is seen to express more dovish rhetoric, then bitcoin prices could rally,” Butterfill told Blockworks. “Conversely, overly hawkish comments are likely to weigh on prices.”

Jeff Feng, co-founder of Sei Labs, said that while a rate hike could signify an environment where risk-taking is discouraged, crypto markets are influenced by many factors beyond just central bank policies. 

“Their inherent volatility means that caution is always advised, especially around significant financial events like FOMC meetings,” he noted.

Feng added that major crypto assets like bitcoin and ether often echo stock market movements.

“We cannot know for sure how long the US stock market can [withstand] such high rates without a drop,” Lienkha said. “In the case of capitulation, we will experience broad capital outflow from risky assets, which definitely will push bitcoin to $20,000 or even further down.”

Crypto market moves lie beyond just Fed actions

Kiely noted that a sign that the Fed is done raising interest rates could be one of two events needed to cause a surge in crypto prices. He argued that the second trigger would be any suggestion that the US Securities and Exchange Commission is set to approve spot bitcoin ETFs.

The market seems to be more sensitive to SEC decision-making than it is to interest rates, Butterfill said.

Franklin Templeton became the latest large TradFi firm to share plans to launch a spot bitcoin ETF — a type of fund the SEC has never let come to market. Other major players seeking to launch such an ETF include BlackRock, Fidelity and Invesco

Read more: Which TradFi giant could jump into the bitcoin ETF race next?

The SEC said last month it needed more time to rule on the proposals of BlackRock, Fidelity, Invesco and others. Industry watchers have said a court win by Grayscale Investments against the SEC in the DC Circuit Court of Appeals last month, however, has increased the chance such a product is ultimately approved

“This would not only cement crypto’s legitimacy but bring an unprecedented flow of liquidity into the digital asset sector,” Kiely said of traditional finance players launching spot bitcoin ETFs. “As the industry matures and aligns itself more closely with mainstream finance, it’s evident these developments could entirely reshape the crypto landscape.”

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