Crypto Faces Warning Signs Before Fed & BoJ Meetings

Central Bank Week Begins with a Cautionary Sign

The crypto market is entering a pivotal week driven by central bank policy announcements. Both the U.S. Federal Reserve and the Bank of Japan are set to reveal their latest interest rate decisions.

The Fed announces its interest rate decision on October 28, followed by the Bank of Japan on October 30. While market participants generally expect both central banks to hold rates steady for now, a shrinking stablecoin supply and lighter trading activity suggest investors are proceeding with caution.

Stablecoin Supply Drops Across Major Blockchains

Data from Lookonchain covering October 19 to October 25 highlights a reduction in crypto market liquidity. Overall stablecoin market capitalization shrank by $2.19 billion during this seven-day period.

Here is how stablecoin balances changed across major blockchain networks:

• EthereumETH-1.39%: Combined TetherUSDT-0.30% and USD Coin (USDCUSDC-0.21%) balances fell by $1.17 billion over seven days.
• Tron (TRX): Lost $495 million, marking the second-largest outflow among top 15 chains.
• Arc: Countered the trend with the largest gain, adding $294 million.

Trading Activity Slows Down on Decentralized Exchanges

Along with falling stablecoin supplies, trading activity on decentralized exchanges (DEXs) slowed during the same week across spot and derivatives markets.

• DEX Spot Volume: Dropped 12.21% from the prior week to $44.09 billion.
• Perpetual Futures Volume: Fell 8.59% to $142.54 billion.
• HyperliquidHYPE+0.38% Performance: The top perpetual DEX saw volume slide 8.50% to $51.68 billion. Its weekly revenue dropped 10.17%, while USDT and USDC balances on the chain decreased by $184 million.

Public Companies Keep Accumulating Crypto Assets

Even as on-chain trading cooled, some publicly traded companies continued adding digital assets to their balance sheets.

• Strive: Purchased 6,182 Bitcoin (BTCBTC-1.34%), bringing its total corporate reserves to 43,000 BTC.
• BitMine: Acquired 10,452 Ethereum (ETH), valued at approximately $24.13 million.

What to Watch from Fed Chair Warsh and BoJ Governor Ueda

According to CME Group's FedWatch tool, there is an 89.5% probability that the Fed keeps rates unchanged at 3.75% to 4.00% on Wednesday. However, the tool shows an 82.3% probability of a rate hike on December 9. Interestingly, expectations for a December hold have also grown, with odds rising from 7.3% a month ago to 17.7%.

Fed Chair Kevin Warsh's press conference on Wednesday will offer crucial clues on whether the central bank favors a December rate increase.

Two days later, Bank of Japan Governor Kazuo Ueda takes center stage. The BoJ is expected to hold rates at 1.25% following its September hike. Over 80% of economists in a Bloomberg survey anticipate its next hike in December. Financial firm Daiwa Securities noted that confirming underlying inflation at 2% could pave the way for a December policy change.

Market Impact and Potential Price Scenarios

Bitcoin entered these central bank meetings trading under $80,000, down 0.27% over a 24-hour period. Looking back at September, when the Fed announced a rate increase, Bitcoin rose from roughly $75,350 to over $76,100 within minutes.

Past returns of digital assets do not guarantee future performance.

Future market reactions will depend on economic conditions and central bank messaging:

• Dovish Outcome: If central bank rate decisions match expectations and officials signal patient monetary policy, crypto prices could find stability.
• Hawkish Outcome: If Fed Chair Warsh or BoJ Governor Ueda strongly signal upcoming December rate hikes, tighter monetary policy expectations could weigh on crypto valuations amid reduced liquidity.
• Neutral Outcome: If monetary guidance remains neutral, trading volumes may stay muted as market participants await clearer macro trends.