Bitcoin is approaching Wednesday’s Federal Reserve meeting with traders already positioned for tighter monetary policy, creating a difficult backdrop for Fed Chair Kevin Warsh as he prepares to explain the central bank’s next steps.
The failed Senate vote on the Clarity Act has removed a near-term legislative catalyst for the crypto market, leaving monetary policy as the next major event. The Fed is due to announce its decision at 2:00 p.m. ET, with Warsh scheduled to speak to reporters 30 minutes afterward.
Bitcoin was around $75,800 ahead of the announcement, down nearly 3% over the previous 24 hours. Other digital assets were also under pressure, with JUP, XLM and ICP each declining about 10%.
Traders Are Pricing a 25-Basis-Point Increase
CME FedWatch data indicate that markets have almost completely priced in a quarter-point rate hike. If delivered, the move would raise the federal funds target range to 3.75%-4%.
The market is also looking beyond Wednesday. According to figures shared by Wall Street Journal reporter Nick Timiraos, nearly every major investment bank expects the Fed to raise rates at least once more before the end of 2026.
Robin Brooks, a senior fellow at the Brookings Institution and former chief economist at the Institute of International Finance, said those expectations create a difficult setup for Warsh.
In Brooks’ view, investors are concentrating on the potential for additional tightening rather than the hike that markets already expect. If the Fed’s message does not support the aggressive path currently priced into assets, the resulting repricing could affect both the dollar and longer-term Treasury yields.
Brooks said a weaker dollar and higher long-term yields could follow if Warsh’s press conference fails to match market expectations.
Why the Dollar Matters for Bitcoin
A decline in the dollar can provide support to dollar-denominated assets such as bitcoin and gold. Both have historically exhibited a negative relationship with the U.S. Dollar Index, or DXY.
The outlook for Treasury yields is less straightforward. Higher yields generally increase the opportunity cost of holding assets that do not generate income, but the cause of the yield increase can change the market response.
Inflation Could Be Behind a Yield Surge
A JPMorgan scenario analysis cited by Barchart describes a potential situation in which the Fed raises rates but avoids committing to an aggressive forward-guidance message.
Investors could interpret that combination as a sign that monetary policy remains too accommodative to contain inflation. That could lead traders to price a faster pace of tightening at subsequent meetings, including the possibility of 50-basis-point increases.
Long-term yields could consequently rise even without expectations of stronger economic growth.
The issue is particularly notable because Warsh has historically been opposed to forward guidance. His approach to communicating the future policy path could therefore have an outsized influence on markets.
Oil and Inflation Add to the Uncertainty
The Fed also faces persistent inflation concerns. Recent readings have pointed to continued price pressures, while oil benchmarks in both the U.S. and Europe have climbed back above $100 a barrel.
A less hawkish message under those conditions could prompt Treasury investors to demand a higher risk premium. That would put further upward pressure on longer-term yields.
For bitcoin and gold, however, the source of rising yields could be more important than the increase itself. If yields rise because of inflation concerns, fiscal risks or expectations for tighter policy rather than stronger growth, the traditional pressure on non-yielding assets may be less pronounced.
Both assets are frequently viewed as stores of value and potential hedges against sovereign and monetary risks. That could create room for bitcoin and gold to recover after an initial risk-off response.
The 10-year Treasury yield is already near 5%, up roughly 80 basis points this year. Concerns about the trajectory of U.S. government debt have accounted for a significant portion of that increase.
Bitcoin traders will therefore be watching more than the rate decision. The Fed’s projections and Warsh’s comments on future policy could determine how the dollar, Treasury yields and risk assets respond after the announcement.
