Is the big one coming? The Federal Reserve FOMC meeting is approaching,
I'll give my brothers a general overview of my thoughts, as well as some knowledge about the FOMC to educate everyone!
Currently, I am holding a comprehensive long position with losses [to prevent black swans], waiting for the big one to come; I have only entered the initial position!
OK🆗, below👇 let's start to learn about the FOMC!
The decisions made at the Federal Reserve's Federal Open Market Committee (FOMC) meetings have a significant impact on the cryptocurrency market, primarily through monetary policy expectations, market risk appetite, and dollar liquidity transmission.
1. Interest Rate Policy and Market Liquidity
- Interest Rate Hike: If the FOMC decides to raise interest rates or releases hawkish signals (such as indicating prolonged high rates), it usually leads to:
- Cryptocurrency decline: A high-interest rate environment increases the yield on risk-free assets (like U.S. Treasuries), weakening the appeal of non-yielding assets (like Bitcoin).
- Stronger Dollar: The appreciation of the dollar may suppress the prices of cryptocurrencies denominated in dollars.
- Interest Rate Cut or Pause: A dovish stance (such as indicating a rate cut) often boosts the market:
- Cryptocurrency market rebound: Improved liquidity expectations drive up risk assets. For example, after the December 2023 FOMC indicated the end of rate hikes, Bitcoin rose over 20% that month.
2. Balance Sheet Reduction and Liquidity Tightening
- The Federal Reserve's reduction of its balance sheet (quantitative tightening) will withdraw dollar liquidity from the market, potentially exacerbating selling pressure in the crypto market, especially in a high-leverage environment.
3. Market Sentiment and Risk Appetite
- The economic outlook in the FOMC statement (such as recession fears or soft landing) will influence investors' risk appetite:
- Risk-averse sentiment: If the meeting mentions economic uncertainty, it may trigger short-term sell-offs in the crypto market (in line with U.S. stocks).
- Inflation Expectations: If the Federal Reserve increases its tolerance for inflation, it may enhance the narrative of Bitcoin as an “inflation hedge asset.”
4. Indirect Channels: Institutional Fund Flows
- Federal Reserve policies impact traditional institutions (like hedge funds, ETFs) asset allocation. For example:
- When interest rates are lower, institutions may increase exposure to cryptocurrency ETFs like Bitcoin.
- Tightening regulations (such as balance sheet reduction + high interest rates) may force institutions to reduce holdings in high-risk assets.