Bitcoin drops 3% to $63,900 as hawkish Fed dents rate-cut hopes

The Federal Reserve's first meeting under Chair Kevin Warsh erased any near-term hope of rate cuts, sending bitcoin to its lowest level in two weeks and extending the crypto market's year-to-date decline to 32%.

Bitcoin fell 3% to $63,900 as the Federal Reserve held rates steady but indicated it is more worried about inflation than growth, tightening financial conditions for risk assets.

"Sentiment is washed out, the fear gauge has plunged into extreme fear and BTC is now about 48% off its $126,000 high from last October," analysts at Marex said. "Positioning is defensive and conviction is thin."

The Fed left its benchmark rate at 3.5% to 3.75% at Chair Kevin Warsh's first meeting, in line with expectations, but updated projections pointed to higher inflation and a slower pace of future cuts. Some officials floated the possibility that rates may still need to rise. Bitcoin's futures open interest pulled back to 730,000 BTC from Tuesday's high of 742,000 BTC, signaling renewed risk aversion, according to Coinglass data as of 14:00 UTC. More than $440 million in crypto futures bets were liquidated across exchanges in the past 24 hours, the majority of which were long positions.

Analysts expect bitcoin to remain rangebound between $60,000 and $70,000 in the coming weeks absent a major catalyst, such as the signing of the CLARITY Act crypto market-structure bill or further US-Iran de-escalation, according to Gerry O'Shea, head of global market insights at Hashdex. The CoinDesk 20 Index fell 1.2%, while the broader crypto market capitalization slipped 1.13% to about $2.29 trillion, extending its year-to-date decline to roughly 32%.

$440M in Longs Wiped Out as Derivatives Turn Defensive

The options market showed traders bracing for further downside. Flows tracked by Laevitas indicated increased demand for put options expiring June 21, a sign that traders are seeking protection against downside volatility heading into the weekend. Bitcoin's 30-day implied volatility index, BVIV, hovered near 41%, having reversed an early-month spike to nearly 59%.

Ether fell 3.4% to $1,733, XRP dropped 3.9% to $1.17 and Solana lost 3.6% to $71, according to CoinGecko data as of 14:30 UTC. The selling was broad, with the DeFi Select Index sliding 5%, the largest drop among all CoinDesk benchmarks.

Rate-Cut Hopes Fade as Inflation Holds at Three-Year High

The Fed's hawkish stance creates a challenging environment for crypto, which has traded as both an inflation hedge and a high-growth technology asset over the past 15 years. With inflation still at a three-year high and payrolls adding more than 500,000 jobs in the last three months, "there is no version of the next few months where the Fed is cutting," said Iggy Ioppe, chief investment officer at Theo.

The Dollar Index, bitcoin's traditional nemesis, is on the verge of a major breakout, adding another headwind for the largest cryptocurrency.

Some traders see a contrarian opportunity. Arthur Hayes, cofounder of BitMex who now runs the Maelstrom family office, has predicted that an AI "credit event" could dwarf the 2008 financial crisis, triggering a wave of money printing that would send bitcoin to $1 million. "If you time this well, you'll never work again," Hayes said on the Bankless podcast, comparing the setup to Michael Burry's famous bet against the US housing market.

For now, the data tells a more cautious story. Bitcoin has held in the low $64,000s, suggesting the worst of the selling pressure may be easing, but buyers remain hesitant with a tighter Fed capping the upside.

This article is for informational purposes only and does not constitute investment advice.