The FOMC meeting, which takes place today, June 18, 2025, has a considerable impact on the crypto market, even though cryptocurrencies were created to be independent of central banks and governments. This influence primarily occurs through interest rate policy and the perception of risk in traditional financial markets.
How do FOMC decisions affect the crypto market?
* Interest Rates and Risk Appetite:
* Higher interest rates: When the Fed raises interest rates, assets considered more "safe" (such as US Treasury bonds) become more attractive, offering higher returns without the same level of risk as other investments. This tends to divert capital from higher-risk assets, including cryptocurrencies, which are often seen as speculative investments. Consequently, the price of cryptocurrencies may fall.
* Lower interest rates: The opposite scenario occurs when the Fed cuts rates. With traditional investment returns decreasing, investors tend to seek assets with higher potential returns, which can lead to increased investment in cryptocurrencies and, consequently, an appreciation of their prices.
* Global Liquidity:
* FOMC decisions regarding money supply and open market operations impact global liquidity. More liquidity in the financial system can mean more money available to invest in risk assets, including crypto assets.
* A tighter monetary policy (reduction of liquidity) generally has the opposite effect, pulling capital out of the market and potentially pressuring cryptocurrency prices.
* US Dollar (USD):
* The Fed's decisions directly affect the value of the US dollar. A more restrictive monetary policy (higher interest rates) generally strengthens the dollar. As many cryptocurrencies are priced in dollars, a stronger dollar can make cryptocurrencies relatively more expensive for investors using other currencies, potentially impacting demand and price.
* Market Sentiment and Risk Assets:
* The crypto market largely still moves in sync with other risk assets, such as technology stocks. If FOMC decisions generate a sentiment of caution or pessimism in traditional markets, that sentiment tends to spread to the cryptocurrency market, leading to profit-taking and price declines.
What to expect from the meeting on June 18, 2025?
Currently, the majority expectation is that the Fed will keep interest rates unchanged at this meeting. However, the post-meeting statement and Jerome Powell's press conference will be crucial. Investors will be looking for any signs regarding the future of monetary policy, such as:
* Hints about future cuts: If the Fed indicates that interest cuts may occur sooner or in greater numbers than expected, this could be seen as a positive sign for the crypto market, as it would indicate an environment of greater liquidity and risk appetite in the future.
* More "hawkish" tone (hardline against inflation): If the Fed appears more concerned about inflation and signals that rates will remain high for longer, or even indicates the possibility of future increases (though unlikely at this moment), this would tend to negatively pressure the crypto market.
* Economic projections (dot plot): The new projections from FOMC members for future interest rates (the so-called "dot plot") are closely watched. A reduction in the number of projected interest cuts for 2025 or 2026 may cool investor optimism.
In summary, even though cryptocurrencies are decentralized, they operate within an interconnected global financial ecosystem. The FOMC's decisions regarding US monetary policy, especially interest rates, play a significant role in shaping risk sentiment and capital availability, which, in turn, can influence volatility and price direction in the crypto world.
