Bitcoin markets are staying cautious ahead of Wednesday’s expected Federal Reserve rate increase. While markets see a 92.5% chance that the U.S. central bank will raise rates for the first time in three years, crypto prices have yet to show a sharp reaction.
According to figures cited by CoinDesk, Bitcoin has spent the past 24 days trading mostly between about $76,000 and $80,000, while volatility has fallen to a one-month low. That suggests much of the expected move has already been priced in.
Chris Sullivan of Hyperion Decimus said the bond market has already fully priced in a quarter-point hike. In his view, the bigger surprise would not be a rate increase itself, but a decision by the Fed to hold. Such an outcome could leave investors wondering what policymakers are seeing that markets have missed.
At the same time, crypto investors are shifting part of their capital into more defensive positions. Talos research analyst Cooper Duschang said the platform has seen a 28% net buying tilt toward stablecoins ahead of the meeting. Around previous Federal Open Market Committee meetings, investors showed an average 8% selling tilt toward stablecoins.
Demand for the two largest cryptocurrencies has moved the other way. Bitcoin buying conviction fell to 3% from 10%, while ether dropped to 9% from 23%. Duschang said the clearest shift has been into stablecoins, as investors reduce risk and keep more liquidity on hand ahead of the Fed decision.
The next major question for the market is where that sidelined cash goes once the decision is announced. Duschang noted that during the Fed’s previous rate hike in July 2023, Bitcoin barely moved because the decision had largely been priced in beforehand.
The derivatives market is not signaling much stress either. K33 Research said open interest across bitcoin futures and perpetuals remains below its yearly average, with little evidence of the kind of leverage that can turn a routine sell-off into a broader wave of liquidations.
Oil remains an additional wildcard. Mark Connors, chief investment officer at Risk Dimensions, said crude prices have climbed more than 20% over the past five days. Higher energy prices could add to inflation pressure even as the Fed tries to contain it through higher borrowing costs.
Connors described another hike as “using a pitchfork to bail out our boat of inflation,” arguing that monetary policy cannot easily solve inflation driven by an oil supply shock. For Bitcoin, that means Wednesday may hinge not only on the expected hike, but also on what Fed Chair Kevin Warsh signals about the path ahead.
Duschang will also be watching the stablecoins accumulated by traders ahead of the announcement. If that money starts moving back onto exchanges afterward, it could indicate that investors who turned defensive into the meeting are preparing to take on risk again.
