Bitcoin Could Find an Upside Despite a Difficult Fed Meeting for Warsh

Bitcoin is facing another major test as the Federal Reserve prepares to announce its latest policy decision, with markets already positioned for higher interest rates and closely watching Chair Kevin Warsh’s guidance.

The failed Senate vote on the Clarity Act has left monetary policy as the immediate focus for crypto traders. The Fed is scheduled to release its decision at 2:00 p.m. ET, followed by Warsh’s press conference 30 minutes later.

Bitcoin was trading near $75,800 ahead of the meeting, down almost 3% over the previous 24 hours. The weakness was not limited to bitcoin, as JUP, XLM and ICP each declined by roughly 10%.

Investors Are Looking Beyond Wednesday

The CME FedWatch tool shows markets have almost completely priced in a 25-basis-point rate increase. That would raise the federal funds target range to 3.75%-4%.

Expectations for additional tightening are also strong. Data shared by Wall Street Journal reporter Nick Timiraos showed that nearly every major investment bank expects at least one more rate hike before the end of the year.

Robin Brooks, a senior fellow at the Brookings Institution and former chief economist at the Institute of International Finance, said the challenge for Warsh is that markets have already adopted a relatively aggressive view of the Fed’s future policy.

According to Brooks, investors are paying more attention to the possibility of further hikes than to the move expected on Wednesday. If the Fed’s communication does not validate those expectations, markets could adjust their positions quickly.

Brooks expects such a scenario could weaken the dollar while pushing longer-term Treasury yields higher.

Bitcoin Could Benefit From Dollar Weakness

The dollar’s direction could be important for bitcoin. Historically, bitcoin and gold have tended to move inversely to the U.S. Dollar Index, or DXY.

A decline in the dollar could therefore provide support for both assets. The outlook becomes more complicated when considering Treasury yields, which typically weigh on assets that do not produce income.

The underlying reason for higher yields, however, may determine whether that relationship holds.

Inflation Creates a Different Yield Scenario

A JPMorgan scenario analysis cited by Barchart outlines the possibility of the Fed raising rates without offering particularly hawkish forward guidance.

Investors could view that combination as evidence that monetary policy remains too loose to deal with persistent inflation. Markets might then price a faster tightening cycle, potentially including 50-basis-point increases at later meetings.

That repricing could push bond yields higher without being accompanied by expectations for stronger economic growth.

Warsh’s historical opposition to forward guidance adds another layer to the situation. His comments could therefore influence how traders interpret the Fed’s intentions beyond Wednesday’s rate decision.

Oil Prices Add to Inflation Concerns

Recent inflation readings have continued to point to persistent price pressures, while oil benchmarks in both the United States and Europe have climbed back above $100 a barrel.

A less forceful Fed message could lead bond investors to seek a larger risk premium for holding Treasury securities. That could push longer-dated yields even higher.

For bitcoin and gold, rising yields caused by inflation concerns or fiscal risks may carry a different implication than yields rising because of stronger economic growth.

Both assets are often viewed as stores of value and potential hedges against monetary and sovereign risks. That could leave room for them to recover if the initial market reaction is driven by broader risk aversion.

The 10-year Treasury yield is already near 5%, up roughly 80 basis points this year, with concerns over rising U.S. debt contributing significantly to the move.

As a result, bitcoin traders are likely to focus not only on whether the Fed delivers the expected hike, but also on how Warsh describes the path for rates after Wednesday’s meeting.