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Stable Outlook: Bitcoin Price Volatility Post Federal Reserve Rate Decision

Sep 21, 2023 at 09:30 am

The Federal Reserve is set to announce its rate decision this Wednesday at 14:00 ET. Current pricing of bitcoin options indicates that the cryptocurrency is not anticipated to experience a movement of more than 3% by Friday.

Experts in the cryptocurrency trading space predict that the Federal Reserve will likely maintain its data-driven approach, resulting in few surprises for the market. The subdued volatility observed in bitcoin aligns with the tranquility seen in both the U.S. stock and bond markets. This period of low volatility is expected to persist even after the Federal Reserve's rate decision on Wednesday.

The Federal Reserve is projected to keep the benchmark interest rate steady between 5.25% to 5.5% on Wednesday, maintaining their favored data-dependent stance. This aligns with market expectations, with rates traders indicating a nearly 100% likelihood of the Federal Reserve maintaining steady rates.

Greg Magadini, the Director of Derivatives at Amberdata, emphasized the Federal Reserve's commitment to remaining data-dependent and signaling a readiness to maintain higher rates. He believes this implies that the Federal Reserve can navigate the FOMC meeting this week by keeping rates unchanged while expressing an intention to sustain elevated rates as they monitor economic developments. Magadini views this as an event with low volatility potential.

The Federal Reserve has consistently emphasized that the trajectory of interest rates hinges on the evolution of inflation and employment, refraining from indicating a definitive conclusion to the rate hike cycle initiated in March of the previous year.

Forecasts anticipate a reiteration of this message on Wednesday, particularly in light of the anticipated rebound in inflation. The markets, accustomed to swift rate cuts over the past forty years, may swiftly incorporate renewed liquidity easing if the Federal Reserve signals the conclusion of the tightening cycle. This could pose a challenge for the central bank.

In summary, the likelihood of the Federal Reserve delivering a hawkish or dovish surprise remains low. This favors the current phase of subdued volatility observed in both the bitcoin and traditional markets.

Singapore-based crypto trading firm QCP Capital shares this sentiment, stating that any significant volatility is unlikely to stem from the Federal Reserve itself. They anticipate little appetite within the FOMC for further hikes in the remaining meetings of the year. They also note the difficulty Powell may face in decisively concluding the hiking cycle, given the surge in pump prices and rebounding inflation.

Based on the pricing of Bitcoin options, traders are not anticipating substantial movement, with expectations of only a 2.8% shift this Friday. This suggests that there is a consensus that Chairman Powell's comments are unlikely to have a significant market impact. Throughout 2023, Bitcoin has shown a modest rally following FOMC meetings, increasing by just +1%, with a subsequent uptick of +3% one week later.

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