Bitcoin Volatility Increases Ahead of FOMC Meeting: What to Expect

Cryptonews BITCOIN, BTC, CRYPTOCURRENCY, FED, FEDERAL OPEN MARKET COMMITTEE, FOMC, JEROME POWELL, MARKET ANALYSIS, MARKET TRENDS, US Omar El-Sharif March 18, 2025

Bitcoin Volatility Increases Ahead of FOMC Meeting: What to Expect

Bitcoin (BTC) experienced a price decline leading up to the FOMC meeting on March 18-19. This volatility is common as traders reduce leverage and anticipate market reactions to monetary policy announcements. Despite historical patterns, recent data suggests increased ETF inflows, indicating a potential shift in investor sentiment. Analysts expect significant price movements post-FOMC announcement.

At the beginning of the week, Bitcoin (BTC) faced pressure from sellers, declining from $84,500 on March 17 to $81,300 as of this writing. This drop is likely connected to the upcoming Federal Open Market Committee (FOMC) meeting scheduled for March 18-19, which often induces volatility in crypto markets.

FOMC meetings typically act as market reset points, where cryptocurrency traders brace for potential impacts related to US monetary policy discussions. Historically, the market tends to de-risk and reduce leverage before these meetings, leading to sharp reactions following the announcements and comments from Federal Reserve Chair Jerome Powell.

Scheduled for Wednesday, March 19 at 2:30 PM ET, the press release from the current FOMC meeting has the potential to trigger significant movements in the Bitcoin market. Analyzing market behavior leading to this release may offer valuable insights into Bitcoin’s future movements.

Traders are closely observing the FOMC minutes, focusing on any changes in the Fed’s perspectives regarding inflation and interest rates. Historically, Bitcoin’s price has reacted sharply after FOMC announcements; since the start of 2024, BTC prices have typically declined following announcements to maintain interest rates, barring a notable rally in February that coincided with ETF launches.

A Key Market Sentiment Indicator is Bitcoin’s open interest—the total number of unsettled derivative contracts, predominantly perpetual futures. Normally, open interest tends to decrease before FOMC meetings, indicating reduced leverage and risk exposure among traders, according to CoinGlass data.

Interestingly, this month has demonstrated an atypical pattern, as there has been no significant decrease in Bitcoin’s open interest amid a price decline. This suggests traders may be less anxious about the Fed’s decisions, with a 99% probability forecast indicating that the Fed will maintain current rates.

In light of these factors, it is conceivable that Bitcoin might continue its downtrend if rates remain unchanged. Such a scenario may align with the positioning of a significant trader, who previously opened and then closed a 40x leveraged short position exceeding $500 million.

Regarding spot Bitcoin ETFs, there has usually been a tendency for investors to divest their BTC holdings prior to FOMC meetings. Evidence suggests that most FOMC events since the January 2024 ETF launches have been characterized by outflows or modest inflows. On March 17, a noteworthy shift occurred, as spot Bitcoin ETFs witnessed $275 million in net inflows, suggesting an evolving investor sentiment ahead of the Fed’s decision.

Increased inflows into spot ETFs might indicate investors expect a more accommodating monetary approach from the Fed. Some institutional investors are accumulating Bitcoin as a hedge against uncertainty, confident in its performance irrespective of the Fed’s outcomes.

Moreover, these inflows could also spark a short squeeze, as traders positioned for a price decline may be compelled to adjust their positions. Post-FOMC, Bitcoin’s price movement, in conjunction with on-chain data and ETF flows, will clarify whether recent behaviors reflect long-term accumulation or speculative strategies.

Consensus among traders suggests a likelihood of significant price fluctuations following the FOMC announcement. As noted by crypto trader Master of Crypto, the potential for dovish statements from the Fed, even without rate cuts, may positively influence markets, while the absence of such statements could lead to price declines.

In summary, Bitcoin’s recent price volatility is closely linked to the impending FOMC meeting. Historical patterns suggest that FOMC decisions significantly impact Bitcoin’s price, with traders typically reducing exposure ahead of these meetings. Current market indicators, such as the unusual open interest behavior and significant ETF inflows, suggest a shift in investor sentiment. Traders anticipate potential price movements in response to the FOMC’s outcomes, emphasizing the ongoing uncertainty in the crypto market.

Original Source: www.tradingview.com