How Will The Fed Statement Likely Impact The Crypto Market?

The Federal Reserve holds its final meeting of the year this week and is set to give its final interest rate decision before the end of the week. A host of other financial data and announcements will also be made in the coming days, and these could strongly impact the cryptocurrency market as a whole and those industries that have become closely linked to crypto.

If a rate cut does emerge, as it is widely tipped, not only will this likely positively impact crypto, but it could also see an increase in expenditure in other areas. Lower rates mean less incentive to save, which, in turn, means people will be more inclined to spend. Consumers may pay more during the festive season and be more likely to invest in gaming, including crypto casinos, as part of their holiday spending. Lower interest also means investors look for risk assets, of which cryptocurrency is one.

It is widely expected that the Fed will announce a rate cut. These cuts have been priced into the market to some extent, as investors trade the rumor rather than the announcement. Lower rates mean less interest on savings. As cash returns fall, investors look elsewhere. Cryptocurrency is a risk asset, which means it carries higher risk than cash but also potentially greater rewards. Investors will turn to crypto in these cases, which could lead to a further surge in the market.

However, if an expected rate cut has already been built into market prices, and the cut doesn’t come or isn’t as big a cut as expected, it could have the opposite effect on the market. We may see crypto prices drop across the board, even with the favorable swell experienced since the election results.

Of course, all of this is coming off the back of Bitcoin’s recent surge to historic highs. The world’s biggest cryptocurrency surpassed $106,000 for the first time on Monday 16th December, and while it is trading a little lower right now, it is still holding above the $100,000 mark at the time of writing. Despite this, there has been a nearly half-billion-dollar sell-off across the crypto board. This sell-off will likely include some profit-taking, with holders looking to take advantage of record highs.

Historically, Bitcoin has shown mixed results over Christmas and the wider December periods. It rallied in 2017 and 2020 but dropped in 2014 and 2021. The Fed rate decision is more likely to have any impact on Bitcoin's prices than the time of year, and the market is expecting a quarter-point drop. This would represent the third straight cut to rates, but next year’s likely movements are proving more difficult to determine with strong economic growth and inflation concerns.