By Pradeep Saran, September 20,2023
Bitcoin (BTC) is currently experiencing low volatility, similar to the stability in the U.S. stock and bond markets. This trend is expected to persist even after the Federal Reserve (Fed) makes its rate decision on Wednesday, as suggested by some cryptocurrency traders.
The Fed’s rate decision is scheduled for Wednesday at 14:00 ET and will include a statement, the Summary of Economic Projections, and a new “dot plot” of interest-rate estimates. Following this, Fed Chair Jerome Powell will hold a press conference. The central bank has raised rates by 525 basis points since March 2022 as part of its efforts to combat inflation, which initially introduced volatility into both crypto and traditional markets.
On Wednesday, it’s anticipated that the Fed will maintain the benchmark borrowing cost within the range of 5.25% to 5.5% and continue its data-dependent approach, with no major surprises expected. Greg Magadini, director of derivatives at Amberdata, noted that the Fed has been clear about remaining data-dependent and signaling a willingness to keep rates higher for an extended period. This suggests that the Fed is likely to keep rates unchanged while monitoring economic developments, resulting in a low volatility outcome for the FOMC meeting.
The Fed’s stance on interest rates has consistently hinged on the evolution of inflation and employment, and it has refrained from signaling an outright end to the rate hike cycle initiated in March of the previous year.
Market expectations align with the view that the Fed will not introduce significant changes, which favors the current low volatility environment in both bitcoin and traditional markets. The likelihood of the central bank surprising with a hawkish or dovish stance is low, as stated by Singapore-based crypto trading firm QCP Capital.
Bitcoin options expiring this Friday, coinciding with the Fed and Bank of Japan (BOJ) meetings, indicate that these rate decisions are unlikely to have a significant impact. Options, which are derivative contracts, are often used by traders to gauge potential post-event volatility in the underlying asset.
Based on Bitcoin options pricing, traders anticipate only a 2.8% movement in BTC on Friday, suggesting that no major market-moving statements are expected from Chairman Powell. In 2023, Bitcoin has shown a minimal rally shortly after FOMC meetings, with a 3% increase one week later, as observed by Markus Thielen, head of research and strategy at crypto services provider Matrixport.