■  Bitcoin price volatility has increased this week, invigorated by the US CPI and upcoming FOMC decision.

■  Despite the confidence of boomers, crypto markets look insecure with BTC barely holding above $40,000, with a possible range likely developing.

■  $37,800 will be critical for the king of crypto, which if lost on the weekly timeframe could precipitate a $30,000 retest.

Bitcoin (BTC) price is showing weakness heading into the Federal Open Market Committee (FOMC) meeting slated for December 13. The Federal Reserve chair Jerome Powell is expected to give a summary of economic projections after Consumer Price Index (CPI) data delivered relief, showing inflation in the US has declined to 3.1% in line with market expectations.

Ahead of the FOMC meeting, investors show caution, de-risking, evidenced by the 40% drop in trading volume over the last 24 hours. Upon the November US CPI data release, Bitcoin price jolted only briefly to $42,000 before pulling back.

Looking ahead, the general opinion is that the Fed will hold rates steady at a target of 5.25-5.50%. During the most recent meeting in November, the FOMC held rates steady, as well as during the September gathering, with a signal that the rates could remain unchanged for the foreseeable future, but maintained an openness to changing this stance, based on economic conditions.

Putting rates hikes on hold was a largely expected outcome as it gave the Fed more time to determine whether the current rates were actually keep inflation at bay at the expense of economic growth.

The 5.25% to 5.50% bar was raised during the July meeting, marking 11 rate hikes across the 2022/2023 cycle, all geared towards managing inflation. It explains the insecurity seen in Bitcoin price.

Increasing interest rates inspires caution among investors, causing an effective aversion of risk-based assets such as cryptocurrencies. Based on the CME FedWatch tool, there is a 97.1% chance that the Fed will keep the Federal target rate at 5.25% to 5.50% in the upcoming FOMC meeting, while 2.9% of the opinion polls anticipate a change to 5.50 - 5.75%.

FedWatch Tool, Source: CME

It should be noted that the degree of certainty between November 10 and December 13 has reduced. In just under 48 hours, the optimism for a steady 5.25% to 5.50% has dropped from 99.8% to 97.1% as more market watchers anticipate a possible target rate adjustment to 5.50% -5.75%.

Probabilities, Source: CME 

Meanwhile Bitcoin price volatility continues to increase, up almost 5% between December 10 and 13, moving from 29.20% to 33.81%.

BTC volatility, Source: IntoTheBlock

It continues to hold thinly above the $40,000 psychological level, with investors showing caution, evidenced by the subdued Relative Strength Index (RSI).

Owing to the fact that the yields on assets dominated by the dollar reduce relatively when the FOMC reduces interest rates, investors seek returns elsewhere. As such, if the Fed raises the target to 5.50% -5.75%, Bitcoin price could move north amid growing demand. In the same way, should the Fed maintain the 5.25%-5.50 threshold, BTC price could display little movement, possibly even dropping.

BTC/USDT 1-day chart, Source: TradingView

Either way, there is a possible range developing, with a move to $48,000 still in the cards before a more significant correction, although the $37,800 remains critical for the upside potential of Bitcoin price. Losing the aforementioned level could set the tone for BTC to spiral to $32,000, or in the dire case, all the way to the $30,000 psychological level.