What is FOMC( Federal open market committee) and how it affects crypto market
The FOMC meeting refers to the Federal Open Market Committee meeting, which is a key event where the U.S. Federal Reserve discusses monetary policy—especially interest rates and the state of the U.S. economy.
How It Affects the Crypto Market:
1. Interest Rate Decisions:
If the Fed raises interest rates, investors tend to move money out of risky assets like crypto into safer assets (like bonds), often causing crypto prices to fall.
If the Fed lowers or keeps rates unchanged, it can encourage risk-taking, which may cause crypto prices to rise.
2. Market Sentiment (Hawkish vs. Dovish Tone)
Market sentiment is how investors feel about the market's future direction.
Hawkish Tone:
When the Fed talks about controlling inflation, raising interest rates, or reducing the money supply, it’s called a hawkish tone.
Impact: Investors expect tighter financial conditions, which can hurt high-risk assets like crypto.
Result: Crypto markets may drop.
Dovish Tone:
When the Fed focuses on economic growth, low interest rates, or continued stimulus, it’s called a dovish tone.
Impact: Encourages investors to take more risks.
Result: Crypto prices may rise.
3. Liquidity Impact
Liquidity means how much money is flowing in the financial system.
Tight Monetary Policy (rate hikes, balance sheet reduction):
Less money in circulation.
Investors move to safer assets like bonds or the dollar.
Crypto may face selling pressure.
Loose Monetary Policy (rate cuts, quantitative easing):
More money in circulation.
Investors look for higher returns in riskier assets like crypto.
Crypto prices often surge.
4. Volatility Spike
Volatility means how quickly prices move up or down.
On or around FOMC meeting days, the crypto market becomes very unpredictable.
Even rumors, leaks, or tone of speech by the Fed Chair (like Jerome Powell) can move the market.
Traders may take large positions just before or after announcements, causing rapid price swings.
