Bitcoin and numerous altcoins have remained confined within a narrow trading range as the crypto fear and greed index dropped into the fear territory at 33, ahead of key decisions from the Federal Reserve and the Bank of Japan.
Bitcoin (BTC) has been unable to break above $60,000 this week, while Ethereum (ETH) hovered under $2,400. Other major cryptocurrencies such as Solana, Tron, and Litecoin experienced minimal changes this week.
This period of consolidation for Bitcoin coincided with MicroStrategy, the largest corporate Bitcoin holder, increasing its holdings. The company now possesses 244,800 BTC, valued at over $14.1 billion. In just the first four days of the week, spot Bitcoin ETFs recorded net inflows exceeding $144 million.
Meanwhile, Ethereum faced ongoing pressure due to continued outflows from ETFs, compounded by reports that Vitalik Buterin and the Ethereum Foundation sold off more coins. There’s evidence suggesting that more Ethereum whales are liquidating their holdings.
Upcoming Federal Reserve and BoJ Decisions
Looking forward, cryptocurrency valuations could face downward pressure next week, coinciding with meetings of the Federal Reserve and the Bank of Japan.
The Fed is widely anticipated to implement an interest rate cut in light of this week’s positive U.S. inflation figures and the previous week’s mixed nonfarm payroll data. The swap market is signaling a 0.50% interest rate cut at that upcoming meeting.
Economists forecast that the BoJ will maintain its interest rate at 0.25%. However, similar to previous instances, the bank may surprise markets with another rate hike. In a recent announcement, Kazuo Ueda, the bank’s governor, hinted at the possibility of another hike if inflation remains elevated.
A rate cut by the Fed, paired with a potential hike from the BoJ, could close the yield gap between U.S. and Japanese bonds, impacting the long-standing carry trade.
In a carry trade, investors typically borrow from nations with low-interest rates and invest in those with higher rates. This trend may explain the Japanese yen’s rise to 140 per U.S. dollar, marking a 13% increase from its lowest value this year.
The repercussions of this unwinding could significantly affect the cryptocurrency market, reminiscent of the events in August. During the so-called crypto Black Monday, Bitcoin dipped to $49,000, and Ethereum fell to $2,100.
Consequently, there is a high probability that Bitcoin, other altcoins, and equity markets will experience increased volatility as the Fed and BoJ announce their decisions on Sept. 18 and Sept. 20, respectively.
