The anticipation of a “hawkish pause” ahead of today’s interest rate decision by the U.S. Federal Open Market Committee (FOMC) has caused Bitcoin traders to take a defensive stance. The central bank is seen as likely to keep interest rates unchanged, yet the possibility of future increases has left the market feeling uncertain – bringing into light some of the vulnerabilities of cryptocurrencies.
Although the FOMC is expected to announce the decision at 2 p.m. ET (18:00 UTC), market participants believe there is just over a 50% probability of the Fed raising rates again in July. This sentiment is supported by the recent dip in the U.S. headline consumer price index (CPI) to 4%, its lowest point in two years. Nevertheless, the current levels of both CPI and the Fed’s preference for the core PCE remain well above their 2% target, thereby providing little scope for an end to the tightening cycle.
The current situation has led to a stronger demand for put options, or bearish bets, against Bitcoin. This is influenced by the general belief that the effects of positive inflation-adjusted interest rates – or real rates – can be detrimental to zero-yielding assets like gold and Bitcoin. Furthermore, some crypto traders are increasingly wary of relying on post-Fed moves in the U.S. stock markets, given the recent weakening of the correlation between Bitcoin and equity indexes like the S&P 500 and Nasdaq.
Regardless of the impact of this anticipated “hawkish pause” on cryptocurrencies, it underscores some of the broader concerns around the long-term future of digital assets. One such concern is the extent to which regulatory actions and government decisions impact the value and stability of cryptocurrencies. This is especially relevant in light of Bitcoin and Ethereum‘s lack of response to a risk-on-equity environment over the past few weeks.
Ultimately, the present uncertainty may be perceived as a cautionary tale for investors within the world of cryptocurrencies. The fact that consensus seems to lean towards a “hawkish skip” implies that the Federal Reserve Chair, Jerome Powell, may struggle to out-hawk the market. Crypto enthusiasts should be prepared for possible fluctuations in value as well as the potential implications that government policy and regulation could have on the broader adoption and utility of digital assets.
Source: Coindesk
