Bitcoin price volatility ramps up around FOMC days — Will this time be different?

At the start of the week, Bitcoin (BTC) faced pressure from sellers, with its price dropping from $84,500 on March 17 to $81,300 as of the latest reading. This downturn appears to be linked to the Federal Open Market Committee’s (FOMC) two-day meeting scheduled for March 18-19. Historically, FOMC meetings serve as pivotal moments for market recalibration, and this one is no exception, as traders prepare for potentially impactful decisions regarding U.S. monetary policy.

FOMC meetings often lead traders to reduce exposure and leverage as they await important announcements. The forthcoming press release, expected on March 19 at 2:30 PM ET, could trigger significant movements in the Bitcoin market. Observing market behavior in the lead-up to the announcement may yield insights into the cryptocurrency’s next trajectory.

To Traders, FOMC Means Volatility

Market participants are keenly analyzing the FOMC minutes, closely monitoring any hints towards adjustments in the Fed’s stance on inflation and interest rates. Although market reactions can be unpredictable, it is noted that BTC prices frequently decline post-FOMC announcements where rates remain unchanged — a trend observed since the beginning of 2024. Notably, the only significant upward movement this year occurred during the pre-halving rally in February, coinciding with the debut of the first spot BTC ETFs.

The months of September and November 2024 saw Bitcoin rally in response to rate cuts by the Fed; however, the following cut in December did not yield similar results, with the price peaking at $108,000 after a modest adjustment to the 4.50%–4.75% range.

Markets De-leverage Before FOMC, Except This Time

Of particular interest is Bitcoin open interest, which represents the total outstanding derivative contracts in the market. Traditionally, this metric tends to decrease ahead of FOMC meetings as traders take steps to mitigate risk. In this instance, however, an unusual trend emerged. Despite a significant shakeup earlier this month, where $12 billion worth of open interest was wiped, a decrease in open interest has not materialized leading up to the FOMC. Instead, the decline in BTC price amidst stable open interest levels suggests a potential strong directional bet from traders.

This phenomenon might indicate that traders are less apprehensive about the Fed’s deliberations, anticipating a neutral announcement. This sentiment aligns with data from the CME Group, showing a 99% probability that rates will remain at 4.25%–4.50%. Should the FOMC decide to keep rates stable, BTC could continue its current downtrend. This expectation aligns closely with the positioning of a notable market participant, who previously opened a 40x leveraged short position. Although this position is now closed, it reflects broader market sentiments.

ETF Movements Indicate Sentiments

In stark contrast to Bitcoin whales, those invested in spot Bitcoin ETFs have often offloaded their holdings prior to FOMC meetings. Since the introduction of spot BTC ETFs in January 2024, most associated FOMC events were marked by outflows, save for an all-time high in January 2025 when demand soared.

Interestingly, on March 17, net inflows into spot Bitcoin ETFs climbed to $275 million — a stark reversal from a prior trend of outflows. This reversal may hint at a significant shift in investor expectations regarding the Fed’s monetary policy.

Should ETF inflows continue to rise before the FOMC meeting, this might signal a growing belief among investors for a more accommodating approach from the Fed, possibly hinting at future rate cuts or a maintenance of liquidity-friendly policies. The increases in Bitcoin ETF investments may also serve as a hedge against market uncertainty, suggesting a belief among some institutional players that Bitcoin could sustain performance irrespective of the Fed’s decisions.

The FOMC meeting is poised to ignite further volatility, and it is not just individual traders watching but also large market players assessing potential short squeezes. If large inflows into ETFs coincide with bearish trader positions, this could catalyze sudden price movements.

As the FOMC meeting approaches, market participant anticipation heightens. Insights from the upcoming announcement will be critical in assessing whether recent market activity marks long-term accumulation or mere speculative betting. As emphasized by crypto trader Master of Crypto, a significant price movement is on the horizon, with many anticipating that outcomes from the FOMC could swing market dynamics substantially.

Every investment and trading move carries inherent risk, compelling traders and investors to remain vigilant and conduct thorough research before making decisions in these unpredictable markets.