Fed Decision Looms Large Over Bitcoin Price
The Federal Reserve's two-day FOMC meeting comes to a close today, leaving Wall Street uncertain about its rate hike decision. The market is pricing in a 35.8% probability of a surprise 25-basis-point hike from the current 3.50%-3.75% federal funds rate, but more than a third of traders expect otherwise.
The case for a hike rests on inflation that refuses to cooperate, with May CPI coming in at 4.2%. The broader trajectory hasn't given the Fed much room to relax, and prices are still running well above the 2% target.
Bitcoin is trading around $63,000 heading into the announcement, and its history suggests the next 48 hours could get uncomfortable regardless of what Chair Kevin Warsh decides to do. Bitcoin has declined following each of the prior nine FOMC decisions, averaging a 3-7% drop within 48 hours.
Higher rates make Treasury yields more attractive on a risk-adjusted basis, which directly competes with Bitcoin's appeal as an alternative store of value. At 3.75% or potentially 4.00% on the federal funds rate, the opportunity cost of holding a non-yielding asset like Bitcoin becomes harder to justify for allocation-sensitive institutional portfolios.