Bitcoin Hits Monthly Low Amid Uncertainty Ahead of Fed Meeting

By Nivesh Rustgi

Bitcoin (BTC) experienced a drop to $29,147, dipping below $29,500 for the first time since June 21.

The latest dip comes amid uncertainty ahead of the U.S. Federal Reserve's policy rate decision this week.

Since March 2022, the Fed has implemented its fastest rate hike policies in decades, raising the benchmark borrowing rates from zero to a range between 5% and 5.25%.

Rate hikes are one of the central bank's primary tools to slow down inflation by increasing borrowing costs. This can also have the effect of slowing the rise of stocks and, of late, cryptocurrencies.

In June, annual inflation decreased to 3% compared to 9.1% a year ago, bolstering market hopes that the Fed would ease its hawkish stance. Last month, the central bank went ahead and paused its hike for the first time in ten consecutive meetings.

In June, the Fed suggested that they may need two more rate hikes this year to combat inflation.

Now, though, the market awaits the policy rate meeting, with the CME FedWatch Tool posting a 99.8% probability that the Fed will announce a 25-basis-point hike in this week's meeting.

The expectations of a rate hike have also bolstered the dollar, as the dollar index (DXY), which measures the dollar’s value against major reserve currencies, rose above 100 points last week, enjoying a 1.31% gain.

The Nasdaq index also slipped below 15,500 points with a 0.84% decline last week.

The futures market opened with a slight positive rise of 0.19% this morning with the index trading around 15,475 points.

If the Fed increases its hawkishness in the latest meeting, hinting at a prolonged rate hike regime or announcing more than one rate hike for the rest of the year, the markets could witness a significant sell-off due to fears of a potential recession.

Conversely, if the Fed's language suggests that this rate hike will be the last one for this cycle, the markets may receive a green signal to move upwards.

CoinGecko data shows that Bitcoin's trading volumes have also decreased significantly leading up to the Fed's meeting, with three consecutive days of less than $10 billion in daily volumes since last Friday.

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