Bitcoin hovers near three-month low ahead of Fed rate decision

CRYPTOCURRENCIES were mostly little changed as investors await a Federal Reserve policy decision that likely holds the key to whether Bitcoin can avert a drop to levels last seen when the pandemic was raging globally.

The largest token rose less than 2 per cent to US$19,306 as of 9.46 am in New York on Wednesday (Sep 21), while other major coins like Ether, Solana and Avalanche were also steady. A drop of more than 7 per cent in Bitcoin – something that can happen in a few seconds in digital assets – would send it back to 2020 prices. 

Markets could breathe a temporary sigh of relief if the Fed raises borrowing costs by three-quarters of a percentage point again as expected and avoids becoming even more hawkish. But a bigger, one-percentage-point increase to fight inflation might heap pressure on riskier assets by imperiling liquidity.

“If the FOMC delivers less than a 100 basis points hike, it would make sense to see a small relief rally – this could be quite large if the FOMC were to deliver less than a 75 basis points increase, although this seems highly unlikely,” said John Toro, head of trading at digital-asset exchange Independent Reserve.

The MVIS CryptoCompare Digital Assets 100 Index is down this week, taking its losses for 2022 to about 60 per centcompared with 21 per centfor global stocks. The correlation between equities and Bitcoin is elevated and close to a record, a sign of how assets are being tossed around by common macro factors.

“If we do end up seeing 100 basis points, we might see quite the volatility” in virtual coins following the Fed announcement, Laura Vidiella del Blanco, vice president of business development and strategy at LedgerPrime, said on Bloomberg Television. BLOOMBERG