Markets are mostly expecting the Federal Reserve to keep interest rates unchanged at Wednesday’s meeting, but a smaller group of investors is preparing for a potential surprise hike. Major financial firms, including Citadel Securities and UBS, have highlighted the possibility of a rate increase.
Trump’s Iran Remarks Send Oil Prices Higher
President Trump said during a Fox News interview that Iran would face a strong response following a missile attack on U.S. forces stationed in Jordan the previous night.
The comments pushed oil prices higher, extending an earlier 4% gain to nearly 7%, with crude trading around $84.63.
Nasdaq 100 futures fell approximately 0.5% before recovering slightly, leaving them down about 0.2%.
Bitcoin also moved lower but remained positive on the day, trading near $64,200.
Zuckerberg Rejects Calls to Ban Chinese AI
Meta CEO Mark Zuckerberg said banning Chinese artificial intelligence companies in the United States would not be an effective approach.
His remarks followed the release of Moonshot AI’s Kimi K3 model in China and accusations from U.S. officials that the company may have relied on technology from American AI developers, including OpenAI and Anthropic.
Zuckerberg argued that the U.S. should focus on addressing internal challenges and removing barriers to innovation instead of implementing broad restrictions on Chinese AI.
Iran Tensions Drive Renewed Oil Rally
Oil markets gained momentum after renewed geopolitical concerns involving Iran, following reports that missiles were launched at U.S. forces in Jordan.
The attack was reportedly intercepted without causing damage, but the news sent WTI crude higher by 4.3% to $82.68.
Broader markets remained relatively stable despite the move in energy prices. U.S. stock futures pointed to slight gains, while Bitcoin advanced about 1.5% to $64,400.
The Federal Reserve’s rate decision remained the key market event. While investors largely expected policymakers to hold rates steady, markets were assigning around a 35% probability of a 25-basis-point increase.
Smaller Crypto Assets Outperform Ahead of Fed Decision
Lower-cap cryptocurrencies led market gains ahead of the Fed announcement, with several altcoins posting strong moves.
Audiera’s BEAT token jumped 28% over 24 hours, becoming the top performer among the 100 largest cryptocurrencies by market capitalization. Uniswap’s UNI gained 7.2%, while Jupiter’s JUP increased 7%.
The CoinDesk DeFi Select Index also climbed 2.8% as traders positioned themselves ahead of the central bank decision.
South Korea’s Kospi Falls Further Amid AI Stock Weakness
South Korea’s benchmark Kospi index dropped another 6% on Wednesday, extending a sharp decline that began after reaching a record high of 9,385 points on June 19. The index has now fallen nearly 40% from that peak.
The selloff has been driven by major technology stocks, including Samsung Electronics and AI chipmaker SK Hynix. Investor enthusiasm for artificial intelligence companies has weakened globally as concerns grow over stretched valuations.
Some market observers believe funds leaving overheated AI trades could eventually move into cryptocurrency markets.
10x Research suggested that if the AI sector continues to undergo a valuation reset, Bitcoin could potentially benefit from capital rotation away from technology investments.
ARK Invest Shifts From Crypto Equities Toward Space and AI
ARK Invest bought approximately $12 million worth of SpaceX shares on Tuesday, adding 105,108 shares across its ETFs as the stock gained 2.6% to $116.41. The purchase came after SpaceX shares declined 29% over the previous month and traded below their June IPO price of $135.
At the same time, ARK reduced its holdings in crypto-related companies, selling about $4 million worth of Robinhood shares, $2.3 million of Block shares, and $1.6 million of Bullish shares.
The firm also made smaller investments in BitMine and a Solana staking ETF, but the broader portfolio adjustment favored AI and space-related assets over crypto-linked stocks.
The shift follows Morgan Stanley’s view that SpaceX’s recent decline has effectively assigned no value to its AI business while maintaining a $300 price target for the company.
Bitcoin Volatility Remains Low Despite Fed Uncertainty
Bitcoin’s 30-day annualized implied volatility index (BVIV), often considered a measure of market fear, remains below 40%, well beneath the 60%+ levels recorded during major market declines earlier this year.
The index reflects demand for options and hedging instruments, with the current reading indicating limited expectations for sharp near-term price swings.
The subdued volatility comes despite uncertainty surrounding the Fed decision. While most investors expect a pause, some institutions, including Citadel, are preparing for a possible increase in borrowing costs.
The CME FedWatch tool currently indicates about a 35% chance of a rate hike, an unusually high level of uncertainty this close to a policy announcement.
Bitcoin Trades Above $64,000 Ahead of Fed Meeting
Bitcoin remained above $64,000 during Asian trading hours on Wednesday, gaining about 1% as the broader crypto market moved higher ahead of the Federal Reserve announcement.
Ether rose 1.7% to $1,909, while XRP led major cryptocurrencies with a 2.6% advance.
According to CME data, roughly 70% of traders expect the Fed to keep rates unchanged in the 3.50%–3.75% range, which would mark the sixth consecutive meeting without a rate adjustment.
However, about 30% of traders are pricing in a quarter-point increase, with Citadel Securities warning clients of a potential surprise hike and UBS also saying such an outcome would not be unexpected.
