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Bitcoin momentarily drops below $57K hours ahead of Fed interest rate decision

Crypto market sinks ahead of Fed decision on interest rates.

A red downward arrow piercing a bitcoin symbol, indicating falling crypto prices before the FOMC meeting

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In the lead-up to the upcoming Federal Reserve meeting, investor pessimism has significantly impacted the prices of Bitcoin and Ethereum.

As of the time of writing, BTC has dropped 7.6%, and ETH is down 6% over the past 24 hours. The Bitcoin price is currently hovering around $57,000, while the Ethereum price is stuck at just under $2,900, according to data from CoinGecko.

The volatility has been particularly challenging for derivatives traders, with $457 million worth of crypto futures positions liquidated in the past 24 hours, according to data from CoinGlass. Unsurprisingly, $392 million of those liquidations were long contracts, where traders had placed bets on future price increases.

The sagging prices have been widespread throughout the market, with few assets in the top 100 cryptocurrencies by market capitalization on CoinGecko escaping the sea of red, aside from stablecoins that have managed to maintain their pegs, such as Tether (USDT) and Circle’s USDC.

The US Federal Open Markets Committee is set to publish its interest rate decision at 2 PM (Eastern Time) today, followed by a press conference with Fed Chair Jerome Powell at 2:30 PM. In February, investors seemed certain that May would be the month the FOMC finally cut interest rates, which is typically a bullish sign for risk assets like Bitcoin. Lower interest rates usually encourage traders to move out of US Treasuries and chase gains in riskier assets, such as equities and crypto assets.

However, the Fed’s key interest rate currently stands at a high of 5.25% to 5.5% and has been unchanged since July 2023 as the central bank aims to curb inflation. Policymakers have been closely monitoring inflation, which is currently at 3.5%, hoping to bring it closer to 2% before considering rate reductions. Last month, inflation increased to its highest level since September, making the prospect of rate cuts more distant.

In March, the Swiss Central Bank announced it was cutting interest rates, providing some hope for traders. However, this sentiment hasn’t spread to other major central banks. Months prior, traders seemed certain that the Fed might lower interest rates in June, according to the CME Fed Watch tool. Sentiment has since soured, with more expectation surrounding the Fed not easing out interest rates until at least the end of this year.

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