Financial markets are tuning in closely to the upcoming monetary policy statement from the Federal Reserve or the U.S. central bank, as any interest rate changes could have a strong impact across various asset classes, including bitcoin prices.
The FOMC or Federal Open Market Committee had been expected to hike interest rates sometime this year, as the U.S. economy has been able to keep up its steady pace of jobs gains and overall growth. However, recent economic issues stemming from China and the emerging markets could force central bank officials to stand pat.
Rate Hike Bad for Bitcoin Prices?
Despite that, an actual interest rate hike from 0.25% to 0.50% might still be on the table, possibly spurring a strong rally for the U.S. currency. In effect, this could push bitcoin prices much lower than their current levels as the dollar gains in value.
Even without a rate hike, bitcoin prices could still be in for losses if the Federal Reserve decides to share forward guidance on the possibility of tightening monetary policy this year or early next year. If so, this might still be enough to drive capital flight towards the U.S. dollar and away from commodities or cryptocurrencies.
On the other hand, cautious remarks from the Fed could keep investors sitting on their hands for the time being. Bitcoin has been pursued as a form of safe-haven during times of economic crisis so far this year, as the cryptocurrency has gained in value at the height of the Greek debt drama and the Chinese stock market selloff.
For now, bitcoin remains a highly speculative asset, which means that investors are prone to dump the cryptocurrency the moment another more appealing security or investment comes up. But even with a potential decline in bitcoin demand stemming from dollar strength comes into play, the cryptocurrency could still draw support from speculations of currency devaluation of policy easing from the likes of the euro zone, Switzerland, and China.