Bitcoin's been on a rollercoaster, hasn't it? Last week we witnessed that heart-thumping, all-in-crypto-pursuits-welcoming rise over $109,000, followed by a gut-wrecking drop under $106,000. Now all the world, it seems, is abuzz with talks of a possible fall under the psychological $100,000 barrier. While the Israel-Iran conflict certainly isn't helping calm nerves, I believe the real culprit behind this volatility is something far more insidious: the looming FOMC meeting.

Always the Fed, right Not the middle east, not the war in central Europe, not the pandemic — always the Fed.

FOMC Hawkish Signals On The Horizon?

Let's be clear: nobody expects a rate hike right now. The danger is in what Jerome Powell says next. Or will he signal a return to a more hawkish Fed? Will he tamp down expectations for those two rate cuts that the market’s so eagerly hanging on to? That's what's making crypto investors sweat.

Think about it. This bitcoin narrative, particularly since the ETF approvals, has been heavily linked to the bet on easier monetary policy. Then there’s the cheap money flowing into the market, inflating a number of asset prices. If Powell dashes that narrative with even the slightest hint of skepticism, it's lights out. We're talking about a major liquidity drain.

That’s where the “surprising link” element is, though. Remember the dot-com bubble? Everyone thought the internet was bulletproof. And then the Fed began the tightening, and poof, those high-flying tech stocks fell back to earth with a loud thump. The same dynamic is at play here. Bitcoin, despite its technical innovation, is far from immune to the central bankers’ fantasies.

Delayed Rate Cuts: Crypto Winter Redux?

The market is currently expecting at least two rate cuts before the end of this year. Imagine if those cuts were delayed indefinitely. What if the Fed were to determine inflation is a bit stickier than they initially assumed?

I've always argued that altcoins are, by and large, leveraged bets on Bitcoin's success. For one, they do quite well when Bitcoin is mooning and there’s a lot of money in the system. When the tide turns, they’re the first to be washed away. Such a delay in rate cuts would surely trigger a massive “flight to safety” within the crypto market. Otherwise, folks would be rushing to sell all their altcoin bags and rush back into Bitcoin, or at least stables.

  • Risk-Off Sentiment: Investors would dump risky assets like Bitcoin for safer havens like US Treasuries.
  • Dollar Strength: A stronger dollar would further pressure Bitcoin, which is often priced against it.
  • Altcoin Armageddon: This is where things get really interesting.

This is not some abstract idea or fantasy calculus. This is about people's livelihoods. These members’ decisions have tangible real world effects, including on the crypto market.

Willy Woo's "late bull market" assessment based on BTC liquidity drops is concerning. It's important to understand why liquidity matters.

ScenarioBitcoinAltcoins
Rate Cuts HappenContinues to rise, albeit slowerPotential for significant gains
Rate Cuts DelayedCorrection, but holds relative valueSignificant losses, potential collapses

Liquidity is the lifeblood of any market. It’s what helps enable you to buy and sell high-throughput assets quickly and easily without moving the price. When liquidity dries up, volatility skyrockets. And guess what impacts liquidity? You got it, the Fed.

Liquidity Crunch: Bitcoin's Achilles Heel

The Fed’s ongoing balance sheet reduction (aka, quantitative tightening) is a major liquidity drain from the financial system. This, plus the uncertainty leading up to the FOMC meeting, is making the perfect storm for Bitcoin.

The increased trading volume we've seen – a 25% jump in the last 24 hours – isn't necessarily a sign of strength. It might be an indicator of panic selling at worst. It’d be like a packed theater when someone erroneously yells “fire!” Everyone is trying to get out at once and the price is tanking under the pressure of too much sell side volume.

We shouldn’t forget that the Crypto Fear & Greed Index has a track record of being wrong majority of times. The signal of “Greed” is flashing green. Bitcoin has been standing on the edge of a knife, so do please be doubly paranoid out there. The smart money is usually on the other side of the trade from the herd.

Be prepared. Manage your risk. And don't blindly trust the hype. As we have discussed, the FOMC is a powerful body. Its decisions risk tumbling Bitcoin and the whole crypto market off that $100K cliff.

We have to remember that the Crypto Fear & Greed Index is not always right. The fact that it's signaling "Greed" while Bitcoin is teetering on the edge of a precipice should make you even more cautious. The smart money is often doing the opposite of what the crowd is doing.

So, what's the takeaway? Be prepared. Manage your risk. And don't blindly trust the hype. The FOMC is a force to be reckoned with, and its decisions could send Bitcoin – and the entire crypto market – tumbling off that $100K cliff.