What is most important for investors regarding the Fed's decision this week on Bitcoin and the dollar

The Federal Reserve is preparing to announce its next interest rate decision on Wednesday, and this decision is a critical point for cryptocurrency market participants. Traders are closely watching not so much the decision itself, but the tone of Chair Jerome Powell’s upcoming press conference, which could determine the fate of risky assets, including Bitcoin.

As of January 29, Bitcoin is trading at $87.88K, down 1.65% over the past 24 hours, reflecting current market volatility ahead of this key event.

Maintaining the course as the main scenario

According to CME’s FedWatch, the probability that rates will remain in the 3.5%-3.75% range is 96%. This confirms the position voiced by Powell in December, when he indicated that further rate cuts are only possible in 2026. Neil Kashkari, head of the Federal Reserve Bank of Minneapolis, recently stated that he considers it premature to resume the rate-cutting cycle.

However, the decision to keep rates unchanged is less important than how Powell explains this pause.

Critical moment: hawkish or dovish scenario

The key question for analysts is whether the current pause marks the beginning of a longer period of conservative policy or a temporary lull before easing conditions resumes.

Hawkish scenario suggests Powell’s emphasis on persistent inflation risks. This could cool market expectations regarding future cuts and put downward pressure on risky assets, including cryptocurrencies.

Dovish scenario depicts a picture where the pause is a temporary measure, and easing policy will resume in the coming months. Morgan Stanley expects the Federal Reserve to adopt this approach, maintaining language in its statement indicating readiness to consider further adjustments. Such a development could support growth in stocks and cryptocurrencies.

Most market participants, excluding JPMorgan, forecast one or two rate cuts for the remainder of the year. JPMorgan, on the other hand, does not expect any changes this year, anticipating rate hikes in 2027.

Impact of housing policy on macroeconomics

Powell is likely to face questions about the impact of the Trump administration’s initiatives to expand housing affordability. The president initiated the purchase of $200 billion worth of mortgage-backed securities, claiming it would lead to lower rates and payments. At the same time, an order was issued restricting the purchase of single-family homes by large institutional investors.

Allianz Investment Management analysts note that these measures are potentially inflationary in the short term. Buying mortgage-backed securities could lead to a sharp increase in demand, inflating prices and redistributing benefits in favor of current market participants. However, restrictions on institutional investors are less significant, given the low share of institutional ownership in the overall housing market.

Dollar dynamics and cryptocurrency stance

Powell’s explanation of the decision could strengthen the US dollar position. According to ING analysts, with the current dynamics of financial markets, it will be difficult for him to argue that financial conditions require easing. A strengthening dollar is a typical result of a more hawkish Federal Reserve rhetoric.

Interestingly, Bitcoin has not shown the expected growth recently amid dollar weakening. JPMorgan strategists explain this by the fact that the current dollar decline results from short-term capital flows and market sentiment, not fundamental changes in growth expectations or monetary policy. This means the market does not see this weakening as a long-term trend.

What to expect from the cryptocurrency market

In these conditions, Bitcoin is trading as an asset sensitive to liquidity and market risk, rather than as a hedge against dollar devaluation. Gold and emerging market equities are preferred instruments for diversifying currency risk from a market perspective.

Meanwhile, the Pudgy Penguins project demonstrates an interesting approach to developing the NFT ecosystem, evolving from a speculative “digital luxe” into a large-scale consumer content platform. Its strategy includes attracting users through traditional channels (toys, retail partnerships), then migrating them into Web3. The project has accumulated over $13M in retail sales, and its token PENGU (current price $0.01) has broad distribution among 6+ million wallets.

Market observers note that the success of such projects depends on their ability to expand retail presence, develop gaming ecosystems, and create real utility for the token.

The Federal Reserve’s decision this week marks a turning point, shaping the direction of not only traditional markets but also the cryptocurrency sector for the coming months.