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Why The Recent Fed Meeting Matters For Crypto

Updated: Jan 27, 2022

All financial markets, including the crypto market, are affected by Federal Reserve policy. That’s why the January 26 FOMC meeting statement along with the Fed chair’s news conference matter so much.

Everyone knows that macro factors have been driving the crypto market as of late –specifically, the Federal Reserve’s reactions to those macro factors. With the crypto market having about a 0.6 correlation to the S&P 500 and Nasdaq in recent weeks, (according to data provider Kaiko), markets seem to be becoming more intertwined.

The major issue of the day is inflation. The original cryptocurrency, Bitcoin, is perceived by many as being an inflation hedge due to its fixed supply. However, Bitcoin reacted to the last few CPI inflation prints by initially rallying and then fading strongly downwards. The accepted rationale is that if inflation gets too hot, the Federal Reserve will hike interest rates. As of this post, the market is expecting three or possibly four rate hikes this year, with the first one expected in March. The market is also expecting the Fed to wind down its QE program in March.

No more "money printer goes brrrrr."