The most important day of July has arrived for cryptocurrency investors. Investors are now counting down the hours. The Fed interest rate decision, which will affect all markets, has largely been shaped over the past week. The decision, shaped by members’ statements and incoming data, has also influenced market pricing. So what will happen next?
Fed Interest Rate Decision
The Fed will announce the expected interest rate decision tonight at 9:00 PM. Most likely, we will see a 25bp increase. This was largely what fueled the negative trend in cryptocurrencies. Investors who expected interest rates to peak in March are now facing a clear disappointment. If we assume that there will be another increase in the next meeting, we will see another 50bp increase from the current level.
New interest rate hikes will indicate that the tightening phase is coming to an end. Cryptocurrency markets will also be pricing in this tighter policy during this process.
What Will Happen to Cryptocurrencies?
The statements to be made by the Fed chairman after the decision tonight will be crucial. If Powell adopts an excessively hawkish stance as expected, we may see rapid sell-offs in Bitcoin until 10:00 PM. If the scenario is that interest rates will not be unexpectedly increased and Powell says that they will monitor the incoming data until the next meeting, we will see a rapid rise. The problem is that so far, the Fed has always acted in line with expectations, so the probability of interest rates not being increased tonight is quite low.
On the other hand, Powell may mention that core inflation is becoming increasingly sticky. The unemployment data for this month was also far from the 4% target. In this case, it will not be surprising to see statements focused on further tightening. But won’t there be a cost to such rapid tightening? Recession concerns are also making the medium-term outlook for cryptocurrencies gloomy, and Bloomberg expects economic downturn to become clearly evident in a few months.
Due to the increase in volatility with the interest rate decision tonight, we may see needles being pushed in both directions, especially in futures trading. The statements made by Powell will significantly affect the performance of Bitcoin in late July and August.
While some altcoins have broken their 600-800 day downtrends, the worst-case scenario will not yield good results.
