Bitcoin (BTC), the world’s leading cryptocurrency by market value, has experienced a significant resurgence in 2022, with its price surging 70% since January 1st.
However, some observers warn that the rally may face a temporary setback if Federal Reserve Chair Jerome Powell does not signal an anticipated pause in the tightening cycle on Wednesday.
Potential Setback Amid Dovish Expectations
The Fed is set to announce its latest interest rate decision on Wednesday at 2 p.m. ET (18:00 UTC). Powell will hold a post-meeting press conference 30 minutes later.
Traders, as indicated by the CME FedWatch tool, expect the central bank to raise rates by 25 basis points to the 5%-5.25% range, marking the end of the tightening cycle that impacted cryptocurrencies last year. Furthermore, rate cuts are expected to commence in July.
Dovish expectations have intensified due to various uncertainties, including the debt ceiling, recession fears, regional bank crises, and bearish speculative activity in banking stocks.
If Powell fails to confirm these expectations, Treasury yields and the U.S. dollar may increase, which has historically been bearish for Bitcoin.
Risk of Disappointment if Powell Lacks Conviction
According to Dick Lo, founder and CEO of TDX Strategies, a quant-driven crypto trading firm, the market is anticipating a pause after the current rate hike.
Lo believes that Powell might avoid making definitive statements about a pause, which could disappoint the market. Since October 2022, markets have exhibited classic risk-on behavior, primarily anticipating a dovish Fed pivot.
Over this period, the dollar index has fallen by more than 14%, while the tech-heavy Nasdaq index and Bitcoin have risen by 25% and 50%, respectively.
A lack of conviction from Powell in signaling the pivot could trigger a recovery in the greenback, as Lo warns. Chris Weston, head of research at foreign-exchange brokerage Pepperstone, expressed similar concerns on Twitter, noting that the risk appears to be skewed on the hawkish side.
Short-lived Dollar Rally and Bitcoin’s Safe-haven Appeal
Weston suggests that any post-meeting increase in yields and the dollar could add to banking sector troubles but would likely be short-lived. Bitcoin has fared well amid recent banking turmoil, bolstering its reputation as a safe-haven asset.
Regardless of what Powell says at the post-meeting press conference, some observers do not anticipate a sustained dollar rally.
Markus Thielen, head of research and strategy at crypto services provider Matrixport, believes that the U.S. dollar is unlikely to rally since expectations for an eventual dovish pivot by the Fed will persist, irrespective of whether the Fed hikes rates again or signals another hike.
