Bitcoin Price Slips Under $64K as Fed’s Hawkish Stance Puts Damper on Peace Deal-Driven Rally

The crypto market resumed its decline on Wednesday after the Federal Reserve said that interest rates could stay higher for longer. This dampened the optimism that was brought by the new peace agreement between the United States and Iran.

The Bitcoin price fell to around $63,750 in the early trading hours of Thursday. Other major coins also posted losses with Ethereum, XRP, and Solana all dropping by roughly 2%.

Smaller crypto assets were not spared in the downturn either. ASTER, which had a remarkable run in the market just yesterday thanks to its tokenomics update, gave back most of yesterday's gains.

The sell-off came after the Federal Open Market Committee voted unanimously to keep interest rates between 3.5% and 3.75%. This decision was widely expected, but markets were more focused on the Fed's updated economic outlook, which suggested policymakers are still concerned about inflation.

Fed signals tougher approach on interest rates

Trump’s appointed Fed Chair Kevin Warsh led his first FOMC meeting on Wednesday, as they left rates unchanged for a fourth straight meeting. However, the central bank's projections painted a more hawkish picture than many investors had hoped for.

According to the Fed's latest "dot plot," nine of the 18 officials expect at least one rate hike before the end of the year. Six of those officials expect multiple rate increases, while only one policymaker projected a rate cut.

Source: Federal Reserve

The crypto market reacted negatively because when interest rates remain high, it makes risk assets look less profitable. Usually, Investors move money into safer investments like precious metals and equities when borrowing costs rise.

Unfortunately, Warsh offered little to no clues on future policy moves. This is a complete change from former Chair Jerome Powell, who usually shared the Fed's next steps. Warsh said the central bank would rather focus on presenting facts than guiding market expectations.

Experts had hoped the new U.S.-Iran peace agreement would help ease the inflation concerns. Lower inflation could have given the Fed more room to cut rates later this year. 

Crypto market sees a $500 million liquidation wave

The update led to a sharp rise in liquidations as traders who went long on tokens were caught off guard. According to Coinglass data, total liquidations increased by 66% in the last 24 hours, to approximately $500 million. Bitcoin traders accounted for $133 million of those losses, while Ethereum positions worth $115 million were also wiped out. 

Source: Coinglass

Additionally, futures open interest dropped by almost 4% to around $107 billion. This means that many traders are now reducing their exposure due to this uncertainty.

Meanwhile, the U.S. dollar saw its strongest rally in more than three months after the Fed's announcement. The Bloomberg Dollar Spot Index climbed almost 1%, its biggest one-day gain since March.

Source: Bloomberg

A stronger dollar often puts pressure on the crypto market as investment shifts across sectors. The dollar's rise also triggered declines across major global currencies, including the euro, British pound, and Japanese yen.

This new market reaction suggests that the crypto market at this moment seems to be paying more attention to the Federal Reserve’s moves than to geopolitical developments.