5 min read Bitcoin has steadied after falling almost 4% in the previous session after the U.S. Senate failed to move forward a major regulatory bill, whilst caution also dominates ahead of the Federal Reserve interest rate decision later today.
Bitcoin fell to a low of $75K yesterday, its lowest level since August 21, but has recovered slightly to above $76K at the time of writing. BTC trades down 3% so far in September, a traditionally weak month for the largest cryptocurrency.
Clarity Act fails
Bitcoin fell sharply yesterday after the Senate voted 49-50 against progressing the Clarity Act.
Most Republicans voted in favour of the measure to establish a broader regulatory framework for crypto in the U.S. However, a lack of bipartisan support meant the vote failed to reach the 60-vote threshold.
The failure to pass the Senate does not entirely remove the possibility of it being approved in later sessions; however, this does appear unlikely, at least in the near term.
Had the vote passed, it was expected to provide more regulatory credibility to the industry, which could help support more institutional demand. With this now looking unlikely in the near term, there was some unwinding of those bullish trades.
All eyes on the Fed rate decision
Attention is now firmly on the Federal Reserve’s interest rate decision at 18:00 GMT.
The market is pricing in a 92% probability that the Federal Reserve will hike interest rates by 25 basis points at the September meeting. With the move almost completely priced in, the focus will be on Kevin Warsh’s guidance, as well as the updated dot plot and growth and inflation forecasts.
The meeting comes after core inflation came in hotter than expected and the non-farm payroll report smashed expectations. Furthermore, oil prices are firmly above $100 a barrel, adding to inflationary concerns.
With the U.S. 10-year Treasury yield briefly pushing above 5% yesterday to its highest level since 2007, the market is almost forcing the Fed’s hand.
Higher rates bode poorly for crypto, given that they reduce liquidity. Meanwhile, higher bond yields also make non-yielding, riskier assets less attractive.
BoJ is the final test this week
The final crucial test for Bitcoin comes from the BoJ, which will announce its rate decision early on Friday and is expected to hike rates by 25 basis points to 1.25% owing to accelerating inflation and rising wages. The market will be watching closely for clues over whether the BoJ will be accelerating its hiking cycle.
The Bank of Japan policy matters to crypto because shifts in Japanese interest rates can affect the yen and the global carry trade. A sharp appreciation in the yen can force investors to unwind positions funded through cheaper Japanese borrowing, which could potentially spill into global risk assets such as crypto.
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