Bitcoin is entering Wednesday’s Federal Reserve meeting under pressure, with traders already expecting a rate increase and looking for clues about how much additional tightening could follow.

The situation became more important for crypto markets after the Senate failed to advance the Clarity Act, removing a key legislative catalyst. The Fed will announce its interest-rate decision at 2:00 p.m. ET, followed by Chair Kevin Warsh’s press conference 30 minutes later.

Bitcoin was trading near $75,800 before the announcement, down almost 3% over 24 hours. Losses were broader across digital assets, with JUP, XLM and ICP each falling roughly 10%.

Markets Expect Rates to Rise

CME’s FedWatch tool shows that financial markets have almost fully priced a 25-basis-point Fed hike. If the increase is delivered, the federal funds target range would move to 3.75%-4%.

Investors are also anticipating further tightening. Data cited by Wall Street Journal reporter Nick Timiraos showed that nearly all major investment banks expect at least one additional rate increase before the end of the year.

Robin Brooks, a senior fellow at the Brookings Institution and former chief economist at the Institute of International Finance, said those expectations could make the Fed’s communication particularly difficult.

Brooks said the main issue for markets is no longer Wednesday’s expected hike, but the possibility of additional increases later this year. A Fed message that fails to support the aggressive path already priced into markets could trigger a reassessment of currency and bond positions.

He expects a potentially weaker dollar and higher long-term Treasury yields if Warsh’s comments disappoint investors.

A Weaker Dollar Could Aid Bitcoin

The dollar’s reaction could be particularly important for bitcoin. Dollar-denominated assets such as bitcoin and gold have historically shown an inverse relationship with the U.S. Dollar Index, or DXY.

A weaker dollar could therefore provide support to both assets. Rising Treasury yields, meanwhile, would normally create pressure on assets such as bitcoin and gold because they do not provide conventional income.

But the reason yields increase can matter as much as the move itself.

Inflation May Drive Bond Yields

A JPMorgan scenario analysis cited by Barchart suggests one possible outcome is a rate hike accompanied by limited or no hawkish forward guidance.

If that happens, investors could interpret the Fed’s stance as insufficiently restrictive and begin pricing more aggressive action at future meetings. That could include 50-basis-point increases and push Treasury yields higher.

Such a move would be different from a yield increase driven primarily by expectations for stronger economic growth.

Warsh’s longstanding opposition to forward guidance makes this possibility especially relevant. His press conference could determine whether markets interpret the Fed’s message as sufficiently restrictive.

Higher Yields Do Not Necessarily Mean a Bitcoin Sell-Off

Inflation is another factor complicating the outlook. Recent readings have shown persistent price pressures, while major oil benchmarks on both sides of the Atlantic have moved above $100 a barrel.

If the Fed appears less aggressive despite those pressures, investors could demand greater compensation for holding U.S. government debt. That would potentially push longer-term Treasury yields higher.

Under normal circumstances, that would be negative for non-yielding assets. But if yields rise because of inflation concerns, fiscal risks or expectations of future tightening rather than stronger growth, the market response could be different.

Bitcoin and gold are often treated as stores of value and potential hedges against monetary and sovereign risks. Those characteristics could allow both assets to regain ground following an initial risk-off move.

The 10-year Treasury yield is already close to 5%, having gained about 80 basis points this year. Concerns surrounding the U.S. government’s debt position have contributed significantly to that increase.

For bitcoin, the Fed’s message may ultimately prove as important as the rate decision. Traders will be watching Warsh’s press conference and the central bank’s projections for clues about whether the future policy path matches the tightening expectations already embedded in financial markets.