The Fed Minutes Will Reveal Why Bitcoin Dropped

Bitcoin BTCUSD -0.68% and other cryptocurrencies fell Wednesday as stocks fell into the red due to growing investor concerns over higher interest rates, following stocks into the red. As the latest Federal Reserve policy committee meeting draws to a close, the minutes will play a key role in determining the direction of the economy.

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Bitcoin's price has declined by 2.2% over the past 24 hours to $24,165, slipping from recent highs above $25,000 over the past few days, which has returned Bitcoin to levels seen over a week ago. As a result of bitcoin's gains so far this year, the largest digital asset has firmly consolidated its position above the crucial $20,000 mark, with the rally to start 2023 taking Bitcoin as much as 50% higher, to above $25,000, the highest levels it has reached since the summer of 2018.

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Yuya Hasegawa, an analyst at crypto exchange Bitbank, said Bitcoin tumbled after a false breakout above its August high. “Bitcoin is still managing to hold above its previous low ... improving technical sentiment could still support the price in the short term.”

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Bitcoin is falling back into its old habits, trading in sync with the stock market despite outperforming the Dow Jones Industrial Average and S&P 500 in recent days, as it has fallen back into its old habits. It is evident that digital assets and equities became largely correlated over the past year in contrast to a tough macroeconomic backdrop of high inflation and rising interest rates, with investor worries over the future of rates playing a significant role in the latest downturn.

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Interest rates are rising, which means that the returns on risk-free bets like government bonds are rising as well, dampening the demand for higher-risk bets like stocks, to say nothing of volatile cryptocurrencies like bitcoin. Mixed inflation data have increased fears that interest rates will continue to rise longer than expected. Investors had turned bullish on risky assets amid expectations the Federal Reserve would roll back aggressive monetary policy this year. Cryptocurrencies would likely suffer even more damage as a result of that.

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Inflation indicators will be released later this week in the form of personal consumption expenditures (PCE), the Fed's preferred inflation measure. Investors, however, are more concerned about something else. 

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There will be a release of the minutes from the last meeting of the Federal Reserve's rate-setting committee at 2 p.m. During the afternoon, investors are expected to pay close attention to the tone of the officials at the central bank, as well as to concerns expressed about loosening financial conditions. It would be equally welcome if the Fed indicated a commitment to make smaller rate hikes of 25 basis points in March in the face of growing expectations of a larger hike later in the year.

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The roaring crypto rally that started this year is considered by some to be the start of a new bull market, despite the Fed's policy sensitivity.

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In spite of the fact that the Federal Reserve may choose to hike interest rates by 50 basis points in the coming months, Vineeth Bhuvanagiri, the managing director of Emurgo, the commercial arm of the Cardano blockchain, said, “I am not sure that this would put much damper on what appears to be a sustained if somewhat measured, climb upward for Bitcoin and other crypto assets. "The conditions are being ripe not only for a recovery of Bitcoin and other cryptocurrencies but also for a sustained rally of some sort for the foreseeable future."

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EtherETHUSD -0.33%, which was the second-largest cryptocurrency at the time, lost 2% to $1,650 in addition to Bitcoin. Cardano, which was down by 2%, and Polygon MATICUSD –0.83% which was down by 5%, were among the smaller cryptos or altcoins that fell. As for the Memecoins, Dogecoin DOGEUSD +0.62% was up less than 1% but Shiba InuSHIBUSD –1.39% lost more than 2% of its value.

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