Crypto Market Awaits Fed’s End To Rate Tightening Measures
Since the start of the year, Bitcoin (BTC), the largest cryptocurrency in market capitalization, has witnessed a remarkable comeback as it follows closely behind the US dollar in liquidity metrics. Its value has surged by 70%, indicating increased demand among investors.
A Possible Federal Reserve Roadblock
Despite Bitcoin’s positive start to the year, some experts suggest that the ongoing surge in BTC’s value could encounter a brief obstacle. They explained that the asset might tumble in value if Jerry Powell, the Federal Reserve Chairman, does not indicate a much-anticipated halt to the tightening cycle during his Wednesday announcement of the apex bank’s rate hike decision.
According to data from the Fed funds futures, traders expect a final 25 basis points increase by the central bank, pushing the rates to the 5%-5.25% range. This would mark the end of the tightening cycle that had a tumultuous impact on cryptocurrencies over the past 12 months.
Additionally, traders forecast that rate cuts will begin as early as July. Powell will confirm whether the Feds will engage in a possible pause in the tightening cycle and rate cuts during his press conference.
Failure to do so could lead to a rebound in Treasury yields and a strengthening of the US dollar (USD). In the past, an increase in both indicators has negatively impacted Bitcoin, leading to a bearish market.
Meanwhile, Dick Lo, founder of crypto trading platform TDX Strategies, noted that the market is anticipating a pause following the latest hike. Observers closely monitor whether the statement includes the phrase ‘additional rate firming may be appropriate.’
Nevertheless, observers are keen to hear Powell reveal an end to the rate-tightening regime.
Will Fed’s Decision Impact Bitcoin Rally?
Over the past year, the correlation between the US equities and cryptocurrency markets has intensified. This could be attributed to the Federal Open Market Committee’s (FOMC) sustained efforts to raise interest rates.
As traders await the Federal Reserve’s announcement on its interest rate decision, the relationship between the equity and cryptocurrency markets has become more apparent. An explanation of this correlation is that a hike in interest rates results in higher borrowing costs, which can, in turn, lead to a decline in both consumer and investor spending.
This can negatively impact the equity markets and lower the demand for crypto assets. Conversely, when interest rates are reduced, it can stimulate economic growth, leading to increased spending.
As a result, both the equity market and the cryptocurrency market can benefit positively. The FOMC’s decisions regarding interest rates continue to impact the broader economy significantly.
Therefore, the relationship between the equity and crypto markets and FOMC’s fiscal policy will evolve and become more apparent with time. Given the FOMC’s influence on the broader economy, the cryptocurrency community is becoming increasingly sensitive to changes in fiscal policy.
As a result, any fluctuations in the equity market can considerably impact the cryptocurrency market. Thus, there is a growing concern among the cryptocurrency community regarding unique addresses and network activities, both of which could affect the ongoing rally of Bitcoin.
The cryptocurrency market’s response to interest rate decisions will remain critical in shaping its future performance until the 2024 Bitcoin halving event draws close.
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