- Wednesday’s FOMC meeting is expected to trigger market turbulence.
- One analyst sees Bitcoin plunging should the Fed signal hawkishness.
- Traders in options markets are betting on wild swings in the S&P 500.
Bitcoin has tumbled below the $60,000 mark, but Federal Reserve-driven jitters could push it as low as $53,000.
The Federal Open Market Committee is set to convene for its third meeting this year on Wednesday, where Chair Jerome Powell is largely expected to announce no change to the Fed’s funds rate.
Though market turbulence potentially awaits. A hawkish stance may “intensify” a sell-off of riskier assets like cryptocurrencies, Ruslan Lienkha, chief of markets at fintech platform YouHodler, told DL News.
Equity options traders agree. Traders are bracing for volatility in the S&P 500 Index — expecting that the equities benchmark will move 0.95% on Wednesday, Bloomberg reported, citing Citigroup data.
Citi found that such a move for the index would be the biggest Fed-day swing since May of 2023.
The warning comes amidst stubborn inflation, and growing geopolitical tensions, which tend to zap investors’ appetite for risk-on assets.
For Bitcoin, the drop to $57,500 marks a shift in investor sentiment after spot Bitcoin exchange-traded funds, and the pre-halving buzz drove the cryptocurrency to a record $73,700 in March.
Federal Reserve meeting
Jonathan de Wet, chief investment officer at digital asset trading firm Zerocap, told DL News that he expects Bitcoin to fall as low as $53,000 should Powell’s comments prove hawkish.
The question is how long the Fed will keep rates at current levels.
CME’s FedWatch Tool shows that options traders are currently pricing a no rate change at 5.25% to 5.5%.
Two months ago, markets expected the first rate cut to occur in June. Now, those chances are quickly evaporating as inflation has remained between 3% and 4% for nearly a year.
The central bank’s desired inflation target range is around 2% and 3%, which could see interest rates persist higher for longer, at least until the end of the year.
On Friday, the Commerce Department posted results for the personal consumption expenditures price index in March, which excludes food and energy prices.
The index increased 2.8% from a year ago and 0.3% from the month prior, a sign that stubborn price growth has persisted despite aggressive rate hikes believed to curtail rising costs.
With inflation remaining “sticky” ahead of the presidential election in November, the economic climate is “tricky” to navigate, Pratik Kala, senior digital asset investment analyst at crypto fund manager DigitalX, told DL News.
Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact Seb at sebastian@dlnews.com.