July FOMC Decision and Its Impact on Bitcoin and Cryptocurrency Prices

The Federal Open Market Committee will release its July interest rate decision on Wednesday, a move that could impact the prices of Bitcoin and other cryptocurrencies.

Cryptocurrencies await Fed decision

Most cryptocurrencies traded in a narrow range ahead of the Federal Open Market Committee’s decision. Bitcoin (BTC) was trading at $66,300, down from this week’s high of $70,000, while Ethereum was at $3,320.

The market capitalization of all cryptocurrencies fell by just 0.78% to $2.38 trillion. Even some of the day’s top performing altcoins such as Mog Coin (MOG), Kaspa (CASE), and Ripple (Exchange rate risk) increased by less than 6%.

Economists expect the Federal Reserve to leave interest rates unchanged between 5.50% and 5.25% at this meeting. According to PolymarketOnly 4% of participants in the $2.4 million pool expect the bank to cut rates by 25 basis points.

Nonetheless, it will be an important meeting as the bank could provide guidance on when rate cuts will begin.

With inflation falling for three consecutive months and the unemployment rate rising, the Fed could signal a September rate cut. The alternative scenario is for the bank to maintain a loose data-dependent stance. In this case, it will watch Friday’s nonfarm payrolls for clues about the labor market and the upcoming CPI report. It will then provide guidance on a September rate cut at the annual Jackson Hole Symposium.

Implications for Bitcoin and Altcoins

All assets are affected by the FOMC’s actions. For example, in 2020 and 2021, BTC and other altcoins skyrocketed when the bank cut rates to zero. Then they reversed in 2022 when the bank initiated its benchmark rates.

One reason Bitcoin and other coins could do well when the Fed starts cutting interest rates is that investors have accumulated trillions of dollars in low-risk assets. Money market funds have accumulated more than $6.1 trillion in assets as investors benefit from the average 5% yield.

These assets will become less attractive when interest rates start to fall. As a result, there is a possibility of rotation into riskier assets such as stocks, cryptocurrencies and Bitcoin ETFs.

Bitcoin Price | Chart of Trading View

However, for this meeting, the impact on cryptocurrencies may be limited as the rate pause has been priced in. As shown in previous Fed decisions, there has been no major impact on Bitcoin prices.

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