Deciphering Federal Reserve’s Impact on Bitcoin and Cryptocurrency in the Post-Tightening Era


As the world sits on the edge of its seat awaiting the Federal Reserve’s upcoming monetary policy announcement, the buzz surrounding its potential ramifications on Bitcoin and the wider cryptocurrency market is impossible to ignore. The decision could mark a watershed moment for the crypto universe, setting the tone for the market’s future.

Monetary Easing and Its 2020 Boon for Crypto

Post the 2020 COVID-19 crisis, the Federal Reserve leapt into action, deploying substantial monetary easing to jumpstart the U.S. economy. The central bank’s initial strategy was crystal clear: flood the economy with liquidity to steer clear of the sluggish rebound experienced in the wake of the 2008-2009 financial crisis. This proactive stance was a boon for Bitcoin and other digital assets, fueling a significant upswing in valuations.

The Pivot: Federal Reserve’s Change of Course

Come mid-2021, the Federal Reserve seemed to have an epiphany. The body appeared to recognize the overextension of its easing policies, ensuing in a sequence of some of the most aggressive funds rate hikes ever witnessed. As real interest rates started to recover, Bitcoin, which had previously soared during the era of eased monetary policies, began to plummet.

FOMC Meeting: What Lies Ahead for Bitcoin and Crypto

The market is rife with anticipation for the upcoming Federal Open Market Committee (FOMC) meeting. It’s widely anticipated that the Federal Reserve will opt for a status quo on rates, corroborated by the FedWatch tool that indicates a 99% market expectation for a rate pause. Despite earlier hints at potential rate hikes beyond current levels, other economic variables like stable oil prices and benign inflation could tip the scale in favor of maintaining the status quo.

The Bigger Picture: An End to Tightening Spells Good News for Crypto

The key takeaway here isn’t just the immediate policy action. The real focus should be on the broader context: the Federal Reserve’s tightening cycle is likely nearing its end. Historical patterns hint at a potential boon for digital currencies when this phase concludes. The crypto industry, despite its rapid innovations and expanding adoption, has been at the mercy of macroeconomic conditions and Federal Reserve policies. A possible end to the tightening cycle could eliminate a major hurdle for cryptocurrency valuations, allowing prices to align better with the sector’s robust fundamentals.

As of now, Bitcoin is trading at $27,099.

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