Regular annual FOMC meetings (about eight of them, approximately once in every six weeks) have a large impact on the price of the global pioneer cryptocurrency, Bitcoin. At these meetings, the chairman of the US Federal Reserve, among other important issues, discusses the bank’s policy about interest rates – whether to cut, raise or hold them unchanged.
All traders of Bitcoin and other crypto watch the news carefully before each meeting takes place since it may impact their trading decisions.
May 2024 FOMC meeting
This year, the FOMC meeting took place on May 1. There had been certain expectations, positive ones, towards it since last year. Several times, those expectations caused by experts’ forecasts and the hints dropped by the Fed chairman Jerome Powell led them to believe that in 2024 the Fed Reserve would apply a loosening policy and start cutting the interest rates. The first two meetings – in January and March – passed without that decision made.
The community still hoped to see the rates going down and, therefore, Bitcoin going up. Besides, the May FOMC session took place after the fourth Bitcoin halving. The latter usually works as a major catalyst for the Bitcoin price.
Interest rate policy impact on Bitcoin
As a rule, stronger interest rates may increase foreign exchange and raise market capitalization. This would likely trigger a Bitcoin price decline. Since a rise in interest rates are positive for the stock market, investors prefer to buy stocks, as well as real estate and other traditional assets, rather than Bitcoin or even by exiting BTC first to allocate those funds into stocks.
Interest rate tightening is a tool leveraged by the Fed Reserve to harness inflation and prevent prices from soaring further. This is what the Fed has been doing for the past few years after the US economy was struck with heavy inflation caused by the Covid pandemic.
Once inflation becomes tamed, the Fed starts loosening the interest rates, thus allowing more funds to flow into BTC. Bitcoin begins to rise as money starts coming into it. This interest rate loosening was exactly what investors had been hoping for last year and as 2024 started as well. However, as May 1 and the new meeting drew closer, Fed Reserve chairman Powell started hinting that there might be no loosening after all.
The crypto community was hoping that the two fundamental catalysts – the Bitcoin halving and spot Bitcoin ETFs approved in January, which have been buying BTC en-masse since then, would ensure a stable and big Bitcoin rise regardless of the FOMC decision. It was not only Bitcoiners who “cheered” for BTC here.
The largest cryptocurrency impacts the whole market of digital assets. Altcoins usually follow Bitcoin in its price movements. Therefore, should Bitcoin crash, the whole market goes deep red. This is indeed what happened this time.
Meanwhile, spot Bitcoin ETFs have started seeing negative flows for many consecutive days, including the largest one made by BlackRock and one of the big ones launched by Cathie Wood’s Ark Invest. As for the Grayscale ETF, BTC has been flowing out of it since the very day the trading started in mid-January.
Bitcoin collapses, not saved by halving momentum
In May, three days ago, the Federal Reserve chairman announced the decision to leave the interest rates unchanged. And it had been raising them for a few years, now leaving them high. Bitcoin reacted to that move by dropping 5% immediately and hitting $56,526 – the lowest price tag since the end of February.
What is more, Jerome Powell announced that the future policy of the Fed will hardly include funds rate loosening.
Additional triggers that pushed BTC down
Bitcoin had begun to fall even before the meeting day – after Powell’s above said announcement. The biggest cryptocurrency lost 7.50% between April 24 and 29 as it fell from $67,000 below $62,000. Then a recovery took place with Bitcoin adding 4.22% and rising to the $64,580 level.
On May 1, when the Fed meeting took place, the leading cryptocurrency stumbled first by 5%, then extended its fall to 7%, and finally crashing by 11.8% to plunge below $57,000.
Another strong catalyst of this fall was the fact that the Binance founder and its former CEO Changpeng Zhao (CZ) was sentenced to spending four years in prison on money laundering charges.
Bitcoin begins to recover
The momentum gained by Bitcoin after the halving was not enough. Halvenings happen every four years, programmed by its pseudonymous creator Satoshi Nakamoto to make Bitcoin more scary and resistant to inflation. It is possible thanks to block rewards getting slashed by half every four years. After the April event, miners started to earn 3.125 BTC per each newly generated block of data.
On May 2d, Bitcoin suddenly reversed and began to rise again. Within one day it grew by 4.67%, rising to $59,730. On May 3, BTC added some more big green candles on the hourly chart, increasing by another 4.85% and hitting $61,870.
On May 6th, the price of the leading cryptocurrency has steadied at $64,100.
