Bitcoin struggles to hold $63,000 ahead of Fed meeting

Bitcoin fell 8% yesterday, recording its biggest single-day decline since the FTX collapse, making traders very cautious.

Early Wednesday morning, the world's largest and oldest cryptocurrency sank as low as $60,951.91 before recovering. At the time of writing, Bitcoin price is $63,154.69. According to CoinGecko data, that means it is 1.6% lower than this time yesterday, but 14% lower than this time last week.

The recent volatility hasn't been enough to send the Crypto Fear and Greed Index into fear again, but the counter has moved from extreme greed to greed.

Source: CoinStats

The good news and the bad news is that there will be another Federal Open Market Committee press conference today. During the conference, Federal Reserve Chairman Jerome Powell will announce whether interest rates will be adjusted and outline the committee's outlook for the economy.

FOMC meetings can sometimes cause volatility in the crypto markets. Since last year, investors have been hoping that the Fed will make good on its forecast and cut three quarter points by the end of 2024, bringing the key interest rate to 4.6%.

But an overwhelming majority – 99% of investors – do not believe the Fed will announce a rate cut today, according to the CME FedWatch tool. 94 percent of investors assume that the current interest rate (525-550 basis points) will remain the same until the May meeting. But in June, 60% of investors think it is likely that the FOMC will begin cutting federal interest rates.

Source: CME FedWatch Tool

That investors are confident that rates will remain flat after this March meeting should mean that Powell's later statement will not cause much volatility. But it remains to be seen. In general, crypto investors see a reduction or at least maintenance of interest rates as a positive sign.

This is because the price of Bitcoin (BTC) has historically been correlated with risk stocks and central bank policies. The more favorable the credit conditions in the economy, the more likely it is to pump BTC. When interest rates are low, investors are more likely to put their dollars into risky assets like stocks and cryptocurrencies. When interest rates are high, investors flee back to the dollar.

The bullet was dodged, right? Perhaps. The other headwind for BTC is the record-breaking rate at which investors withdrew funds from spot Bitcoin ETFs earlier in the week.

As of Wednesday morning, Bitcoin funds had recorded $480 million in net outflows over the past two days, according to CoinGlass. But there's more to it than that. The Grayscale Bitcoin Trust (GBTC) has seen more than $1 billion in shares redeemed since Monday, but that was offset by funds flowing into the 9 new spot Bitcoin ETFs.

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