Bitcoin Tumbles Below $65K Post-FOMC as Middle East Tensions Flare

The price action happened as Iran's leadership reportedly ordered retaliatory attacks against Israel, increasing concerns about a broader conflict in the Middle East.

Crypto markets saw a sharp downturn on Wednesday as rising geopolitical risks took center stage following the conclusion of the July Federal Reserve meeting.

Bitcoin dropped to $64,500 from around the $66,500 level where it traded following Federal Reserve Chair Jerome Powell's press conference, and was down more than 2% over the past 24 hours. Altcoin majors including ether, solana, Avalanche's AVAX and Cardano also declined, while Ripple's XRP saved some of the gains from earlier today.

The sell-off happened as the New York Times reported that Iran's leaders ordered retaliation against Israel for killing Hamas leader Ismail Haniyeh in Tehran, increasing risks of a broader conflict in the region.

The news comes after Haniyeh was reportedly killed in a blast in the Iranian capital on Monday, with Israel denying any involvement in the incident. Tensions between Israel and Iran have been escalating in recent months, with both sides accusing the other of carrying out attacks on their territory or allies.

Earlier today, the Fed left benchmark interest rates unchanged and gave little indication that a widely expected rate cut in September is guaranteed. Fed's Powell said that while no decisions have been made about a September cut, the "broad sense is that we're moving closer" to reducing rates.

"We're not there yet, but we're moving closer," Powell said at a press conference following the conclusion of the central bank's two-day meeting.

The Fed chief's remarks come as markets are pricing in a 90% chance of a 25 basis point rate cut at the conclusion of the September meeting, according to the CME's FedWatch tool.

"The labor market continues to strengthen. Job gains have been robust in recent months, and the unemployment rate has fallen to 4.1%," the Fed said in a statement following the conclusion of its two-day meeting.

"Inflation remains elevated, reflecting both supply and demand imbalances related to the pandemic and higher energy prices," the central bank added. "Price pressures have moderated somewhat in recent months but continue to be above our longer-run goal of 2%."

While digital assets suffered losses, most traditional asset classes climbed higher during the day. The 10-year U.S. bond yields fell 10 basis points, while gold was up 1.5% to $2,450, slightly below its record-highs and WTI crude oil prices surged 5%.

Equities also soared during the day, with the tech-heavy Nasdaq 100 index closing the session up 3%, while the S&P 500 closed 2.2% higher and the Dow Jones Industrial Average was up around 1.8%.

Among the best performers were chipmaker giant Nvidia, whose shares closed up 12%, and oil major Chevron (CVX), which gained 4.5%. Both companies reported better-than-expected earnings and revenue for the second quarter.

The differing performances between asset classes could be due to traders' positioning prior to the Fed meeting, Grayscale's head of research, Zach Pandl, said in an emailed note.

"Equities may have been slightly under-owned after the recent drawdown, while bitcoin is coming off a strong period with solid inflows, whereas gold rallied after a period of weakness," he said.

"Bigger picture, the combination of Fed rate cuts, bipartisan focus on crypto policy issues, and the prospect of a second Trump Administration may advocate for a weaker U.S. dollar should be considered very positive for bitcoin," he concluded.

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