Cryptocurrency prices edged lower Tuesday with dogecoin and XRP leading declines among major tokens, each dropping more than 3% over 24 hours as traders positioned themselves ahead of a critical Federal Reserve announcement. The CoinDesk 20 Index, which tracks the broader digital asset market, fell 2%.
Market activity remained subdued as bitcoin investors largely prepared for Wednesday's Federal Open Market Committee meeting, which is expected to provide signals about future monetary policy that could significantly influence risk assets. While the central bank is widely anticipated to maintain current interest rates between 4.25% and 4.50%, analysts suggest Chair Jerome Powell's comments could trigger substantial market movements.
"A rate cut this Wednesday remains highly unlikely as the U.S. pivots away from fiscal dominance, where government spending fueled growth, toward Trump's push for deficit reduction," traders from QCP Capital shared Tuesday. "The shift puts the burden back on monetary policy." These traders noted that while an immediate cut isn't expected, any dovish language from Powell might catalyze upward momentum.
QCP Capital also suggested a potential shift in market dynamics. "Capital may be rotating out of Trump-driven momentum trades like NASDAQ and Bitcoin and into long-overlooked European and Chinese markets," they added, highlighting that cryptocurrency prices have historically lagged behind changes in global liquidity conditions.
The cautious sentiment extends beyond digital assets. Agne Linge of WeFi pointed to elevated volatility in traditional markets, with the crypto fear and greed index registering an "extreme fear" reading of 22. This measurement reflects investor anxiety about inflation, trade tensions, and geopolitical instability.
"In the United States, the S&P 500 and Nasdaq Composite recorded their fourth consecutive weekly declines last week, with the Dow Jones dropping by 3.1% to record its worst weekly turnover in about 24 months," Linge said. The analyst warned that continuing macroeconomic challenges could eventually pressure bitcoin prices downward.
Bitcoin has maintained a relatively tight trading range amid this uncertainty. Ryan Lee, chief analyst at Bitget Research, indicated the leading cryptocurrency could move toward either $75,000 or $90,000 depending on market reactions to the Federal Reserve's decision.
"Bitcoin's recent pullback has traders watching key support levels between $82,000 and $85,000," Lee told CoinDesk via email. "It's a classic post-rally consolidation phase that is healthy but also a test of whether the recent momentum has real staying power."
Lee emphasized the potentially pivotal nature of Wednesday's announcement. "Any unexpected FOMC moves could throw a wrench into the market," he said. The analyst outlined possible scenarios, noting that negative sentiment could push bitcoin toward the $75,000-$80,000 range, while favorable macroeconomic conditions might propel prices back toward $90,000.
The market's heightened sensitivity comes amid a shifting economic landscape under the new presidential administration, with fiscal policy changes potentially requiring monetary adjustments to maintain economic balance. Traders across both traditional and cryptocurrency markets appear positioned for increased volatility following the Federal Reserve's announcement.