Bitcoin traders brace for Fed hike, but a surprise hold could pose bigger risk

“The clearest shift has been into stablecoins,” Duschang said. Investors, he said, appear to be “reducing risk and holding greater liquidity ahead of the Fed.”

The bigger question for Wednesday afternoon is where that sidelined cash goes once the Fed decision is out of the way.

There is some precedent for a muted initial reaction. Bitcoin barely budged around the Fed's last rate hike in July 2023, Duschang said, with the move largely priced in before the announcement.

The derivatives market isn't showing much anxiety either. K33 Research said open interest across bitcoin futures and perpetuals remains below its yearly average, with little evidence of the kind of leverage that can turn a routine selloff into a wave of liquidations.

Oil is the wildcard. Crude has risen more than 20% over the past five days, according to Mark Connors, chief investment officer at Risk Dimensions. Higher energy prices could add to inflation even as the Fed tries to contain it with higher borrowing costs.

Connors described another hike as “using a pitchfork to bail out our boat of inflation,” arguing that monetary policy can't easily fix inflation caused by an oil supply shock.

For bitcoin, Wednesday may therefore be less about whether the Fed delivers the hike everyone expects and more about what Fed Chair Kevin Warsh says comes next.