Bitcoin Decouples from Dollar and Equities Ahead of Fed Rate Decision

With correlations fading, protective strategies that proved effective recently—specifically hedging Bitcoin exposure against S&P 500 futures on the assumption it would continue tracking risk assets—are currently less dependable. (Typically, if Bitcoin moves in lockstep with U.S. equities, a long position can be hedged by shorting index futures.)

“That means the beta hedge that would have worked Monday is unreliable today, and today’s FOMC reaction may be swamped by regulatory follow-through,” Liu noted.

This dynamic frames the upcoming decision, scheduled for 2:00 p.m. ET, as a critical test of whether Bitcoin will re-establish its traditional links to the dollar and stock market or continue trading primarily on regulatory developments.

The Federal Reserve is widely expected to raise interest rates by 25 basis points, a move largely priced into markets, with most investment banks projecting additional hikes before year-end.

Absent a larger increase or unexpectedly hawkish guidance from the Fed, some observers anticipate the Dollar Index could weaken. In isolation, a softer dollar would provide a tailwind for Bitcoin.

Traders should also monitor Treasury yields closely. A sharp spike in yield volatility could tighten financial conditions and trigger renewed risk-off flows across the crypto sector.

“The market lull can easily be attributed to expectations of signals from the Fed later on Wednesday, which have greater potential to influence volatility than the 25-basis-point rate hike already priced in,” Alex Kuptsikevich, chief market analyst at FxPro, said in an email.

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