What happened
Since late afternoon yesterday, the price of the world's largest cryptocurrency, Bitcoin, has traded 3.5% lower as of 1:42 p.m. ET today as investors braced for the Federal Reserve's upcoming meeting, which begins tomorrow.
So what
The Fed is widely expected to raise interest rates by a quarter of a point when it wraps up its meeting on Wednesday, but I think the market will be paying closer attention to the Fed's remarks after its meeting.
One of the big reasons Bitcoin and the crypto market have rallied this year is the belief that the Fed will end its intense interest rate hiking campaign, which has proved devastating to riskier assets like Bitcoin. But it's still not a given because the trajectory of inflation may prove stickier than the market thinks, although there have been signs of inflation slowing in recent months.
Another potential reason for the decline in Bitcoin today could also have to do with JPMorgan Chase's acquisition of most of the assets from First Republic Bank. First Republic has really struggled since the banking crisis began in March and saw more than $100 billion of deposit outflows in the first quarter of the year.
The acquisition by JPMorgan helps to stabilize the banking system and it also resulted in a smaller loss to the Federal Deposit Insurance Corp.'s (FDIC) Deposit Insurance Fund than many expected. Because cryptocurrencies were developed as an alternative to the mainstream banking system, Bitcoin has tended to perform well when investors were worried about the banking system.
Now what
The belief that the Fed will soon pause its interest rate hikes and struggles in the banking system have been two consistent themes driving Bitcoin higher this year.
But now investors are nervous about the Fed meeting and a resolution to First Republic does provide some stabilization in the sector. However, I still think Bitcoin will be a good long-term investment and is worth having some exposure to.
