Several scenarios were proposed in the days leading up to the Federal Open Market Committee (FOMC) meeting as to whether or not interest rates would be raised.
The unpredictability of the meeting’s outcome sparked price fluctuations in the crypto asset market, which went up or down depending on the direction of the rumours.
But what is the Federal Open Market Committee, and how does it affect cryptocurrency prices?
Explaining the FOMC
The FOMC typically has eight meetings each year but can call additional meetings if needed. Analysts on Wall Street and the cryptocurrency industry spend a lot of time guessing whether the Federal Reserve will tighten or loosen the money supply, leading to an increase or decrease in interest rates, based on their assumptions about the outcome of the meetings, which are not open to the public.
The Federal Open Market Committee is responsible for setting U.S. monetary policy and coordinating related open market operations (OMOs).
FOMC news and crypto price move
Santiment found an intriguing correlation between Federal Open Market Committee (FOMC) announcements and market movement.
Cryptocurrency social media saw a rise in conversation on the FOMC, and the last FOMC spike occurred just before market volatility worsened.
As is so often the case, there was often a price reversal. In many cases, it indicated a pending bottom or a period of increased volatility.
The price of BTC tends to follow that of U.S. stocks, so investors in the cryptocurrency industry keep an eye on the Federal Reserve. According to the theory of “risk aversion,” a tightening of monetary policy would reduce the appeal of risky assets like Bitcoin.
The FOMC announcement
The Federal Reserve raised interest rates by 75 basis points in an announcement as expected, and traders and investors saw the news as a possible final rate increase from the Fed.
Stocks and cryptocurrencies alike increased in value when the announcement was made, led by Bitcoin and Ethereum. In the minutes following the FOMC announcement, BTC prices increased by 1.3%.
Soon after, though, Fed Chairman Jerome Powell warned in a news conference that interest rates would continue to rise until inflation was down, prompting panicked Wall Street and crypto traders.
Did BTC react?
Looking at BTC’s price across a 6-hour timeframe before and after the FOMC news showed significant reactions. As trading for 2 November came to a close, it was clear that the price had risen by a little percentage, only to give some of that back.
The day’s trading session began at $20,495, and by the time it ended, Bitcoin had dropped to $20,155, a loss of almost 1.5%.
Taking a peek at the Bollinger Band, we could see that the price of BTC was now experiencing little volatility.
If the band continues to tighten, an explosion is likely to occur, and the price of BTC might spike sharply in either direction. How the general market reacts to the FOMC news in the coming days would determine the direction.
The BTC and cryptocurrency market’s reaction to the Federal Open Market Committee meeting showed just how intertwined the two markets were.
Fundamental policies that govern traditional markets still have an effect on the crypto industry, despite the distinctions in features and operations.