Bitcoin and Cryptocurrencies Remain Depressed, but Key Catalyst Looms

The market for Bitcoin and other cryptocurrencies showed slight signs of improvement on Friday, although prices remain relatively low heading into the weekend. However, next week brings an important development that has the potential to impact both the stock market and the world of digital currencies.

Over the past 24 hours, the price of Bitcoin has risen by 1%, reaching $40,500. In recent days, Bitcoin has experienced significant volatility, fluctuating around the crucial psychological level of $40,000. While earlier this month saw Bitcoin reach its highest point since early 2022 following the approval of spot Bitcoin exchange-traded funds (ETFs), a "sell the news" phenomenon soon followed, undermining the gains made.

Despite recent drops in equity indices, cryptocurrency investors have shown relative resilience. According to Alex Kuptsikevich, an analyst at broker FxPro, "Volatility in the cryptocurrency market remains subdued... Bitcoin remains around $40,000."

However, this stability may not last. As the ETF frenzy begins to fade, evidence suggests that Bitcoin's correlation with the stock market, particularly with the Dow Jones Industrial Average and S&P 500 indexes, is growing stronger. Therefore, investors are eagerly awaiting a significant monetary policy decision from the Federal Reserve next week. This decision has the potential to shape expectations regarding interest rates—a macroeconomic trend that affects all risk-sensitive assets, including cryptocurrencies.

Apart from Bitcoin, Ether—the second-largest cryptocurrency—experienced a slight decline of less than 1%, settling at $2,230. On the other hand, smaller tokens or altcoins demonstrated strength, with Cardano experiencing a 1% increase and Polygon seeing a 2% rise. Memecoins also demonstrated positive performance, as both Dogecoin and Shiba Inu recorded a 1% increase.

In conclusion, while Bitcoin and other cryptocurrencies currently face depressed levels, the upcoming monetary policy decision from the Federal Reserve has the potential to act as a catalyst that could significantly impact both the digital asset market and the stock market.