Is 'freezing' interest rates more dangerous than raising them?…Bitcoin flees to cash-like assets ahead of Fed decision

Is 'freezing' interest rates more dangerous than raising them?…Bitcoin flees to cash-like assets ahead of Fed decision

▲ Bitcoin, Dollar ©CoinReaders

According to investment publication FXStreet on September 16 (local time), Bitcoin (BTC) investors are reducing their risk exposure ahead of the U.S. Federal Reserve's (Fed) interest rate hike. The market is pricing in a 92.5% chance that the Fed will raise interest rates for the first time in three years, and BTC has been trapped in the approximately $76,000-$80,000 range for the past 24 days, with volatility falling to its lowest level in a month.

The market largely seems to have already priced in a 0.25 percentage point interest rate hike. Chris Sullivan of Hyperion Decimus assessed that the bond market has already fully priced in the interest rate hike. He explained that if the Fed, contrary to expectations, freezes interest rates, a larger shock could occur as investors question, "What is the Fed seeing that the market doesn't know?" Even during the last interest rate hike in July 2023, BTC largely reflected the rate hike before the announcement, showing no significant movement immediately after the actual decision.

Investors' defensive moves ahead of the Fed's decision were clearly evident in stablecoins. According to Talos, recent stablecoin trading saw a net buying bias of 28%. This contrasts with an average net selling bias of 8% observed before past U.S. Federal Open Market Committee (FOMC) meetings. Meanwhile, Bitcoin's buying intensity fell from 10% to 3%, and Ethereum (ETH) dropped from 23% to 9%. This indicates that investors are reducing their exposure to risky assets while securing liquidity.

In the derivatives market, excessive signs of anxiety have not yet appeared. According to K33 Research, open interest in Bitcoin futures and perpetual futures is below the annual average, and signs of leverage accumulation that could escalate a typical sell-off into a large-scale cascade liquidation are limited. However, international oil prices, which have risen by more than 20% in the last five days, are considered a variable. Mark Conners of Risk Dimensions pointed out that rising energy prices could increase inflationary pressure, while it is not easy to resolve supply shock-induced inflation solely through interest rate policy.

Ultimately, the market's attention is focused not on the interest rate hike itself, but on what signals Fed Chairman Kevin Warsh will give regarding the future path of monetary policy. At the same time, whether investors' accumulated stablecoins move back to exchanges after the Fed's announcement is also a key observation point. Cooper Dushang of Talos explained that if stablecoin funds return to exchanges after the announcement, it could be a sign that investors who acted defensively before the Fed meeting are preparing to re-invest in risky assets.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*