Bitcoin price misses. The Fed decision will be a key moment for cryptos.

“This pause will allow Bitcoin to ‘cool down’ and create opportunities for a new stage. Nevertheless, the risk of a deeper correction remains elevated, with the first significant line of defense likely to be $26,000 and the second at $25,000,” said Alex Kuptsikevich, an analyst at the broker FxPro. “We should be prepared for increased profit taking in the market before the Fed’s decision.”

There’s a laundry list of possible reasons why crypto has done so well over the past two weeks, including the notion that the panic sweeping global banks reinforces Bitcoin’s fundamental principles of financial decentralization. More likely, the pressure on banks – an unintended consequence of the dramatic rise in interest rates over the past year, which has hit both Bitcoin and stocks – has changed expectations about US monetary policy.

Traders no longer expect the Fed to be as aggressive with its next move on interest rates on Wednesday, with both the prospect of the central bank holding rates steady or raising them by a quarter of a percentage point as a sign of more accommodative policy. Indications that interest rate hikes will slow, or even reverse at some point this year, will be very supportive of Bitcoin prices as lower prices stimulate demand for higher-risk assets like crypto.

That said, “while further gains will be amplified or dampened by macro conditions … an examination of performance, on-chain and supply-side shows reason for continued optimism for Bitcoin bulls,” noted Alex Thorn, head of research at crypto-focused financial services group Galaxy Digital.

In fact, while Bitcoin is likely to move along

Dow Jones Industrial Average

and

S&P 500

Wednesday following the Fed decision, there are signs that cryptos are strengthening at a fundamental level, beyond their sensitivity to macro factors.

First, the correlation between Bitcoin and gold is increasing while the correlation to stocks is falling to the lowest level in many years, according to Thorn. This would be an indication that digital assets are seen as more of an uncorrelated play than an expression of risk sentiment – ​​a possible sign of maturation across the asset class.

Moreover, data shows that the recent rally is largely based on the accumulation of investors in the “spot market”, who buy Bitcoin itself, as opposed to price action driven by the crypto derivatives market. This dynamic suggests that buy-and-hold traders dominate, as opposed to prices being driven by pure speculation.

Still, at least in the short term, “as much as some Bitcoiners want to believe that the banking crisis has driven people toward Bitcoin as a flight to safety, I don’t think we’re quite there yet,” said James Lavish, managing partner at Bitcoin Opportunity Found. “In reality, Bitcoin continues to trade as a leading risk-on asset, as it has for the past two years … I personally expect volatility to continue, and I pick my positions opportunistically.”

So while trends cited by Bitcoin bulls point to maturation and strength across cryptos, don’t expect the moves this week to be driven by any narrative other than the Fed decision and the outlook for interest rates.

Beyond Bitcoin,

Ether

— the second-largest crypto — fell 3% to below $1,750. Smaller cryptos or altcoins showed much of the same, with

Cardano

down 3% and

Polygon

5% lower. Memecoins were also in the red, with

Dogecoin

and

Shiba Inu

both fall 4%.

Write to Jack Denton at [email protected]