Bitcoin and other cryptocurrencies rose on Wednesday ahead of the Federal Reserve’s latest monetary policy move. As traders have made bullish bets ahead of the central bank’s interest rate decision, crypto markets could be primed for volatility.
The price of Bitcoin has risen less than 1% in the past 24 hours to over $27,150, trading near its previous high in September. The largest digital asset has easily moved out of the $26,000 zone that has dominated trading over the past month amid historically low levels of volatility and volume.
“Some relative stability in the cryptocurrency market, led by Bitcoin, which stabilized near the $27,000 level,” said analyst Wael Hammad from broker XS.com. “All market sectors are looking ahead to the Federal Open Market Committee’s upcoming decision.”
Cryptos – like the Dow Jones Industrial Average and the S&P 500 – are likely to see price action due to the Fed’s next interest rate decision, due at 2 p.m. Eastern time.
The central bank is expected to keep borrowing costs stable, with focus on its next move in November, as expectations continue to fluctuate over whether another interest rate hike is imminent or whether financial conditions are now tight enough to contain inflation. The interest rate environment remains crucial for Bitcoin, which has come under severe pressure since the Fed’s tightening cycle began last year. Higher returns on risk-free cash tend to dampen demand for riskier bets like cryptos.
Advertisement – Scroll to continue
There is the potential for a spike in volatility related to the Fed decision as traders have bet en masse on Bitcoin in the perpetual futures market, the most liquid cryptocurrency market that is full of leverage or borrowed money.
Bitcoin open interest – the amount of capital locked in active futures contracts – on Binance, the world’s largest crypto futures market, has risen to $3.3 billion for the third day, according to data from Coinglass, with the bets clearly bullish. With so much leverage locked into bets on rising prices, a hawkish move by the Fed could unsettle traders and trigger a cascade of selling that pushes Bitcoin prices sharply lower as leveraged traders’ positions are wiped out.
Besides Bitcoin, Ether – the second-largest cryptocurrency – traded less than 1% down at $1,640. Smaller tokens or altcoins were mixed, with Cardano falling less than 1% and Polygon rising 1%. Memecoins were subdued, with Dogecoin just off the bottom but Shiba Inu gaining less than 1%.
Advertisement – Scroll to continue
Write to Jack Denton at [email protected]