Bitcoin Is About to Test the Adage 'Don't Fight the Fed'

This year’s 40% rally in Bitcoin is heading toward a potentially big test in the shape of the upcoming Federal Reserve policy decision.

Crypto, stocks and bonds have jumped in the new year on expectations of a Fed pivot to slower interest-rate hikes and eventual cuts as high inflation cools. While the Fed appears set to downshift to a quarter-point increase Wednesday, Chair Jerome Powell may stress policy will stay restrictive to damp prices.

That could pour cold water on a $250 billion run-up in overall crypto market value in the past four weeks. The worry is a reminder of the old adage of “don’t fight the Fed,” coined in 1970 by the late investor Martin Zweig, who was pointing out the strong correlation between Fed policy and stocks.

The crypto “market is overly optimistic regarding a swift Fed pivot,” Vetle Lunde, senior analyst at Arcane Research, wrote in a note. Lunde added that “slowing momentum, strong technical resistance and expectations of a hawkish FOMC” point to a “poor February.”

Arcane said an analysis of Bitcoin swings around the Fed’s recent post-decision briefings indicates that a “trend of massive FOMC-induced volatility in BTC is receding.” But it added traders should still brace when Powell speaks.