Bitcoin edged above $64,000 during Asia trading hours on Wednesday as investors positioned for the Federal Reserve’s policy decision. The central bank ultimately held its benchmark overnight rate range steady at 3.50%-3.75%, extending a pause for a sixth consecutive meeting. The decision came with an unusually high level of pre-meeting uncertainty, as futures markets had priced roughly a 35% chance of a quarter-point hike.

Fed Holds Rates Steady, Warsh Strikes Hawkish Tone

Following the decision, bitcoin initially rose 1.25% to $64,500 before giving up some gains. U.S. stocks narrowed losses, with the Nasdaq down just 0.1% after being more than 1% lower earlier. The knee-jerk reaction reflected relief that the Fed did not hike, but Chair Kevin Warsh’s hawkish opening remarks quickly tempered risk appetite.

“There is no soft inflation target,” Warsh said, reiterating his view that any inflation reading above 2% is unacceptable. His words sent risk markets lower, with bitcoin slipping back below $64,000 and the Nasdaq extending losses.

The bond market response was notable for a steepening curve. The ten-year Treasury yield rose around 5.5 basis points to 4.66%, while the two-year yield fell six basis points to 4.22%. The move suggested an unwind of hike bets, but also potentially reflected market concerns about higher inflation expectations.

The vote was not unanimous. Three officials dissented in favor of a hike, versus nine voting to hold. Warsh described the discussion as “robust”, noting he was “asked for a good family fight and I got one”. He also said the central bank was observing the recent rise in yields but trying to stay out of it.

Warsh indicated the internal debate centered on whether raising rates would fix the current inflation spurt. He implied that higher rates might not cure inflation driven by geopolitical oil price spikes and AI-related memory chip price rises. This nuance was seen as a signal that the Fed may tolerate temporary supply-side shocks.

Yield Curve Steepens, Oil Spikes on Iran Tensions

Oil prices also played a major role in Wednesday’s session. A reported missile attack on U.S. forces in Jordan overnight triggered a 4.3% jump in WTI crude to $82.68. President Trump later told Fox News that Iran would be “hit hard” in response, pushing oil to a near 7% gain at $84.63 and sending stock futures lower. The rise in crude prices complicated the Fed’s inflation calculus.

Meta and Microsoft Deliver Contrasting Earnings

Meta (META) reported second-quarter EPS of $6.18 versus Street estimates of $7.14, a sizable miss. Revenue of $60.8 billion topped forecasts for $60.4 billion. The company guided third-quarter revenue to a midpoint of about $63 billion, largely in line with expectations. Meta also lifted the lower end of its full-year AI-related capex spending to $130 billion from $125 billion, with the upper end unchanged at $145 billion. Shares fell 5.4% in after-hours trading.

Microsoft (MSFT), in contrast, beat expectations. The company reported fiscal fourth-quarter EPS of $4.74 versus $4.24 expected, and revenue of $90.1 billion against $87.6 billion expected. The all-important capex spending guidance was not included in the results, but details were expected on the post-earnings call. Shares rose 2% after-hours.

Bitcoin Shows Calm Amid Fed Uncertainty, Altcoins Lead

Bitcoin showed resilience despite the uncertain macro backdrop. The cryptocurrency traded above $64,000 for most of the day, up roughly 1% on a 24-hour basis. Ether added 1.7% to $1,909, and XRP led major tokens with a 2.6% gain, according to market data.

The options-based fear gauge, bitcoin’s 30-day implied volatility index, remained below 40%, well off the highs above 60% seen during early June and February sell-offs. The low reading suggested limited demand for protective options and little concern among traders about imminent sharp price swings, despite the Fed uncertainty.

Several smaller tokens outperformed. Audiera’s BEAT token rose 28%, the best performance in the top 100, followed by Uniswap’s UNI at +7.2% and Jupiter’s JUP at +7%. The DeFi Select Index gained 2.8%.

Morgan Stanley Sees Tokenization Bringing Mainstream Investors

Morgan Stanley executives said tokenization could bring digital assets to a broader group of investors. Denny Galindo, investment strategist at Morgan Stanley Wealth Management, noted that tokenized products could become the first exposure many investors have to blockchain-based finance. He also commented that if the current focus on AI fades, venture capital could rotate into crypto opportunities. “Everyone wants to spend their venture capital money on AI,” he said. “If that turns, I think there are a lot of opportunities here in crypto.”

Galindo observed that many investors have stopped at bitcoin, but growing access to ETFs and other digital asset products is creating new possibilities for portfolio construction. He underscored the need for education as digital asset offerings expand.

AI Trade Repricing Sends Ripples Through Markets

The Nasdaq is on track for its worst month in nearly four years, down 9.5% in July. Bespoke noted the last comparable drop was September 2022, a 10.6% decline that marked the bottom of that year’s bear market. An early attempt to revive the AI momentum trade faded, with SanDisk, Micron, AMD, Applied Materials, and KLA Corp. lower by 3%-6%. Nvidia fell 2.4%, and the VanEck Semiconductor ETF (SMH) dropped 2.5%, now down nearly 20% from a month ago.

Goldman Sachs commented that everyone owned some version of the AI momentum trade and many were slow to react to the rollover in AI winners. The last few days have seen multi-sigma moves across long/short books without much movement in broader indices. Goldman characterized the event as a deleveraging and de-grossing event rather than a macro one.

South Korea’s Kospi index dropped 6% on Wednesday, deepening the bear market that began after it peaked at 9,385 points on June 19. The index has fallen nearly 40% from that high, led by heavy declines in Samsung Electronics and AI-linked chip maker SK Hynix. Some analysts suggested that capital outflows from overheated AI trades could find their way into crypto. 10x Research noted that as the AI trade gets repriced, bitcoin may capture some of the value.

Cathie Wood Rotates Out of Crypto Equities Into SpaceX

ARK Invest purchased about $12 million of SpaceX on Tuesday, buying 105,108 shares across its ETFs. The stock had fallen 29% over the past month, trading well below its $135 June IPO price. At the same time, ARK trimmed about $4 million of Robinhood, $2.3 million of Block, and $1.6 million of Bullish, a crypto exchange. The firm added small positions in Bitmine and a Solana staking ETF, but its larger rotation moved from crypto equities into AI and space trade.

One of the market’s most vocal bitcoin bulls appears to be treating a beaten-down AI-and-space stock as a better place for risk capital, even while trimming crypto-adjacent equity exposure. Morgan Stanley said earlier this week that SpaceX’s selloff has pushed it to a level pricing its AI business at zero, maintaining a $300 target.

Source:Coindesk News