The last few days have been dominated by a rollercoaster of news and events in the world of cryptocurrency – from the Federal Reserve’s announcement of daily dollar swap lines to support global banking markets, to the US Securities and Exchange Commission’s (SEC) filing a lawsuit against a Terraform Labs co-founder, to Switzerland’s National Bank stepping in to bail out troubled Credit Suisse – bitcoin investors have been waiting with baited breath for the U.S. central bank’s much-anticipated decision on interest rates.
As investors look to the Fed rate decision due on Wednesday, bitcoin has been stuck on a teeter-totter, hovering just above and below the $28,000 mark. Though early this week saw the largest cryptocurrency briefly climb above $28,400 before settling back down, Stefan Rust, CEO of data aggregator Truflation, sees this surge as a sign of investors’ waning faith in the fiat banking system and a flight to safer, more portable cryptocurrency options.
But what will happen to bitcoin’s price once the Fed’s decision is made? Will the price soar in response to the Fed’s possible shift towards more dovish interest rate policies, or will it slump in the face of more conservative policy decisions? Delphi Digital co-founder Tom Shaughnessy thinks it’s impossible to predict – “This is the first time in history that we have a global banking crisis, and crypto validated to a degree and well known that people can now seek an alternative and go into crypto,” he told CoinDesk’s First Mover program.
While the FOMC’s decision is sure to make waves in the crypto markets, investors’ hope for the Fed’s dovish shift has provided somewhat of a buffer for bitcoin’s price this week. Just this Tuesday, the CME FedWatch tool predicted a 45% chance of a zero basis point rate hike. As of now, that probability has shrunk to 80.5% for a 25 basis point hike. After last week’s inflation report, it seems most likely that the Fed will forego its streak of interest rate hikes.
In the meantime, Ethereum (ETH) and other cryptos among the top 25 by market value were largely in the red on Monday, with APT and MATIC tokens down more than 8% and 6% respectively. But the token of the Solana blockchain, SOL, rose slightly.
These shifting fortunes come at a time when traditional reserve currencies, such as the US Dollar, have faced headwinds amid a global banking crisis, a slow US recovery, and an accompanying surge in inflation. Moreover, the European Central Bank has been taking its own measures to tackle inflation by increasing its interest rate by 50bps on Thursday, which some analysts predict to be a likely prelude to the US Fed raising its interest rates.
Regardless of what tomorrow’s decision may bring, the crypto markets remain optimistic under increasingly complex conditions. Despite regulatory attempts to crack down on crypto, Tesla’s bold $1.5 billion purchase of bitcoin, and strong investor sentiment, bitcoin has managed to stay resilient – selling off during Thursday’s sudden pullback before rallying again on Friday.
With this in mind, the Federal Reserve’s rate decision will be one of immense importance. Whether it’s for better or for worse, markets around the world and especially in the world of cryptocurrency will be watching closely. After all, it’s not every day that investors get to roll the dice and take a chance at going to Nakamoto’s “heaven” or “hell.”