• Bitcoin is stable at around $23,000 ahead of the first Federal Open Market Committee (FOMC) meeting of 2021.
• A rate hike is expected, which could result in increased volatility for the cryptocurrency market.
• History shows that sudden price movements can occur following Fed announcements.
With the first Federal Open Market Committee (FOMC) meeting of 2021 set to conclude today, the cryptocurrency market is looking on with anticipation. This is because the Fed is widely expected to raise the interest rates by another 25 basis points. The move could have a significant impact on the crypto market, as past rate hikes have been seen to result in immediate price volatility.
At the time of writing, Bitcoin is holding steady at around $23,000, with traders seemingly waiting to see how the FOMC meeting plays out. However, history has proven that sudden and drastic price movements can occur following Fed announcements. During the last rate hike in December, for example, Bitcoin saw a sudden drop of over 8%.
The cause of these sudden price movements is often the increased cost of borrowing. When the Fed raises the interest rates, the cost of borrowing money goes up, which in turn makes investing in riskier assets less attractive. This can lead to investors selling their cryptocurrency holdings in favor of safer investments, resulting in a sudden drop in price.
Of course, the impact of the FOMC meeting is not limited to Bitcoin. Other cryptocurrencies are likely to be affected as well. Ethereum, for instance, has been on a tear for the past few months, hitting all-time highs on a regular basis. However, a rate hike could cause investors to take their profits, leading to a sharp drop in the price of ETH.
It is also worth noting that the impact of the FOMC meeting on the cryptocurrency market could be short-term. After all, the fundamentals of the crypto market remain strong, with institutional investors continuing to pour money into the space. This suggests that any potential drops in prices could be limited and temporary.
Ultimately, the cryptocurrency market is waiting to see what the FOMC meeting brings. Bitcoin, in particular, is currently stable at around $23,000, but this could change dramatically depending on the rate hike. History has proven that sudden and drastic price movements can occur after Fed announcements, so traders should be prepared for anything.