- Bitcoin prices rebounded back to $65k, but investors remain cautious ahead of upcoming FOMC meeting which could lead to interest rate hikes reducing market liquidity.
- Disappointing bitcoin ETF flows recently partly resulted from investors trimming risks before FOMC meeting starting Wednesday when Fed Chair Powell may announce further rate hikes to fight inflation.
- Outlook unclear how much FOMC meeting could impact bitcoin prices – Fed may slow rate hikes or hold off entirely, but could still surprise markets with aggressive rate hike, sparking pullback across risk assets like bitcoin.
The price of bitcoin has rebounded back to $65,000, but some investors are still worried about potential risks from the upcoming FOMC meeting.
The Lead-In
Disappointing flows into bitcoin ETFs over the past few days have partly resulted from investors trimming risks ahead of Wednesday’s FOMC meeting, according to one market observer. The meeting could lead to interest rate hikes that reduce market liquidity.
The Situation Explained
Federal Reserve Chair Jerome Powell will lead the two-day FOMC meeting starting on Wednesday. Investors are concerned the Fed may announce further interest rate hikes to fight inflation. This could reduce liquidity in markets like bitcoin.
Some investors have pulled back from bitcoin ETFs in recent days to reduce exposure ahead of potential volatility from the meeting. One analyst said disappointing bitcoin ETF flows have been driven by “investors taking risk off the table.”
Bitcoin prices fell below $60,000 briefly last week but have rebounded back above $65,000. The cryptocurrency remains sensitive to broader macroeconomic conditions.
The Outlook
It remains unclear how much the FOMC meeting could impact bitcoin prices. Some analysts think the Fed may slow the pace of rate hikes or hold off entirely at this meeting. This could limit downside for bitcoin.
Other market observers warn much uncertainty remains around how aggressive the Fed may still be on inflation. The central bank could still surprise markets with another large rate hike, which could spark a pullback across risk assets.
Conclusion
Bitcoin has rebounded lately but remains vulnerable to Fed actions on interest rates. Investors are cautious heading into the FOMC meeting this week, trimming exposure in case of potential volatility. The cryptocurrency may continue facing macroeconomic headwinds in 2023.
