Bitcoin and Ethereum Traders Should Watch 'Narrative Whipsaw' Heading into Fed Decision

In brief

• Bitcoin is trading at $89,842 while Ethereum has reclaimed $3,000 ahead of Wednesday’s Federal Reserve meeting.
• Markets have priced in a 97% chance that the Fed holds rates steady at 3.5-3.75% range.
• The focus has shifted to Powell’s labor market commentary as unemployment sits at 4.4%.

Bitcoin and Ethereum have gained 2.1% and 3.5% respectively, as investors await the Federal Reserve’s next interest rate decision Wednesday afternoon. Bitcoin is changing hands for $89,842, about level with where it was a week ago, according to data from crypto price aggregator CoinGecko. And Ethereum regained $3,000 for the first time since last week, trading for around $3,026 after having risen 2.1% in the past seven days. With just hours to go before the Fed’s first interest rate decision of the year, the CME FedWatch Tool shows that futures traders estimate there’s a 97% chance that interest rates will remain unchanged.

Traders on prediction market Myriad, owned by Decrypt’s parent company Dastan, put just a 33% chance on the the Fed cutting rates by more than 25bps before July. “While a ‘hold’ at 3.5%–3.75% is a statistical certainty, crypto traders should be wary of a ‘narrative whipsaw,’” Jummy Xue, co-founder and chief operating officer of institutional crypto management firm Axis, told Decrypt. “The focus is no longer on the cost of capital, but on the Fed’s sensitivity to a 4.4% unemployment rate.”  At the start of January, the Bureau of Labor Statistics reported a December unemployment rate of 4.4%, which was little changed from the revised November 4.5% rate. “If [Federal Reserve Chairman Jerome Powell] emphasizes labor market resilience over cooling inflation, he is effectively taking a March rate cut off the table,” Xue added. “For Bitcoin, which has thrived on the expectation of continuous easing, such a pivot could transform a ‘neutral’ meeting into a medium-term bearish catalyst.”

In the current economic environment, Xue expects traders to primarily rely on the debasement trade. It’s a strategy that assumes governments will keep increasing the supply of money and erode the value of cash. In response, investors gravitate towards less easily diluted assets like commodities, real estate, and cryptocurrencies. Aurelie Barthere, a principal research analyst at onchain analytics firm Nansen, told Decrypt that Powell seemed concerned about job market weakness at the December meeting and he expects that to hold. “Even with the U.S. economy accelerating into first half of 2026, boosted by fiscal, the labor market has kept cooling,” she said, “on the demand side, not just the supply side.” But more comments from Powell on unemployment isn’t necessarily a bad thing, she added, pointing to overnight index swap markets pricing in less than two rate cuts after Powell leaves the Fed in June. “If Powell’s tone remains as dovish as in December, the pricing of rate cuts could be increased and brought forward before June (March and April),” Barthere said. The outlook for crypto Digital assets like Bitcoin and Ethereum tend to benefit when investors expect interest rates to fall because lower rates reduce returns on cash and bonds and encourage risk-taking across markets. Conversely, when rate cuts are delayed or taken off the table, crypto prices come under pressure as traders shift capital back towards yield-bearing assets. But Wednesday’s interest rate decision isn’t the only macroeconomic event on the horizon. Analysts at Singapore-based crypto trading firm QCP Capital flagged that traders are also bracing for a Friday, Jan. 30 funding deadline to keep the U.S. out of another government shutdown, uncertainty about the Senate’s next move on the CLARITY Act and volatile currency markets.