The U.S. Federal Reserve kept the interest rate unchanged at 3.50%-3.75% for the fifth time on Wednesday, triggering mixed signals across traditional and crypto markets.
In the split vote, nine of the Federal Open Market Committee (FOMC) members approved the rate pause. Three members dissented and called for a 0.25% rate hike.
According to the Fed, the economy was “expanding at a solid pace” but blamed elevated uncertainty on the ongoing Middle East conflict that has kept inflation above the 2% target.
Following the statement, the U.S. stock market dropped lower. The Dow Jones slipped 2.19% while the S&P 500 dipped 1.5%. The tech-heavy Nasdaq also posted a 1.74% loss. Bitcoin also showed mixed results. It initially rallied to $64.7K before sharply dropping to $63.2K. But it quickly pared the losses at the end of the trading session on Wednesday. As of writing, the crypto asset was trading at $64K.
For Ethereum, the altcoin was barely holding on to the $1900 level. Still, analysts had divergent views on Fed Chair Kevin Warsh’s plans to rein in inflation and its potential impact on equity and crypto markets.
Will Fed rate hike fears affect crypto in Q3?
Worth noting that the crypto market de-risked ahead of Wednesday’s Fed rate decision, according to Bitfinex analysts. In an email statement, the analysts told AMBCrypto that,
Between 23-28 July, US spot bitcoin ETFs recorded four consecutive red sessions totaling $526.5 million in net outflows.
They added,
While this clearly demonstrates a drying-up of inflows, the modest scale of the outflows, alongside $BTC holding up relatively well, points to a temporary de-risking into the rate decision, rather than a broader withdrawal.
On Fed rate decision day, the U.S. Spot $BTC ETFs posted $32M in net daily inflows, breaking the four-day streak of consecutive outflows. Whether institutional demand for $BTC will stabilize in the coming days remains to be seen.
Regarding ETH’s outperformance, Bitfinex analysts viewed it as possible ‘defensive positioning’ to hedge against $BTC losses. But the analyst noted that this could only be validated if $BTC regains ground post-FOMC.
Looking forward, the market was pricing a 65% chance of a Fed rate hike at the September FOMC meeting.
The odds increased by 10% after Wednesday’s rate pause, suggesting the rate hike fears could come back. If so, risk assets could remain on edge.
Surprisingly, Options traders were increasingly betting on a potential $BTC price breakout above $70K-$75K in late August and September.
Final Summary
- U.S. equities dropped lower after the Fed rate pause, but Bitcoin was relatively resilient
- Despite potential Fed rate hike fears in September, Options traders were betting on a bullish breakout towards $70K-$75K in Q3.