The Fed reiterated that it would raise interest rates and shrink its balance sheet "as soon as possible", the market reaction was flat, and Bitcoin bulls remained on the sidelines

On Wednesday afternoon, Eastern Time, the Federal Reserve released the minutes of its meeting from January 25 to 26. The minutes showed that officials discussed plans to raise interest rates and reduce the central bank's balance sheet at the meeting. Some officials expressed concerns about financial stability at the meeting, saying that loose monetary policy could pose a significant risk, interest rate hikes could come soon, and the exit of bond portfolios could be "aggressive." Despite the seemingly tough tone, the stock market and crypto market regained their "lost ground" after the release of the minutes.

Investor sentiment seemed to ease as the minutes did not indicate that the Fed was moving faster than expected in raising interest rates. Bitpush terminal data showed that during the opening hours of the U.S. stock market on Wednesday, as investors waited for clues from the Fed on inflation, tapering and rate hike plans, Bitcoin briefly retreated to $43,071. As of press time, it rebounded slightly and the price recovered to around $43,767, with daily volatility easing. The S&P 500 index closed flat after intraday volatile trading.

The Federal Open Market Committee decided not to raise interest rates ahead of schedule after the meeting, but strongly hinted that a rate hike would be made as early as March.

“The market correctly interpreted them as dovish relative to expectations, and frankly I would call them ‘anticlimax,’ ” Simona Mocuta, chief economist at State Street Global Advisors, told CNBC.

Crypto markets have been in consolidation over the past few weeks as soaring inflation and hawkish comments from some Fed officials, especially St. Louis Fed President James Bullard , have traders pricing in seven quarter-point rate hikes this year, with a 74% chance of a quarter-point hike in March. After the release of the minutes, market pricing has retreated somewhat, with the probability of a 1.75 percentage point rate hike by the Fed falling to 50%.

"There's been so much hype lately, and I think everyone was ready for a very hawkish tone in the minutes, and instead the minutes were more like, 'Of course we're going to do this, but we're going to walk before we run,' and four rate hikes seemed to be enough, " Mocuta said.

Accelerate balance sheet reduction

In addition, the committee also developed procedures for how to begin reducing its balance sheet, with the minutes stating: "Participants observed that, given the Federal Reserve's current large holdings of securities, a significant reduction in the size of the balance sheet might be appropriate."

Since the meeting, new inflation data showed U.S. prices rising at the fastest pace in 40 years. The Fed's goal is for inflation to average around 2%, and the minutes showed that inflation dominated much of the discussion during the meeting, with the word mentioned 73 times in the summary, and members said price increases were stronger and more persistent than they had expected.

The minutes said: "Participants recognized that higher inflation was a burden on American families, particularly those least able to pay higher prices for basic goods and services." Although no specific details on reducing the balance sheet were decided at this meeting, participants agreed to continue the discussion at an upcoming meeting.

The meeting also briefly discussed cryptocurrencies and stablecoins. Fed officials expressed concerns about the significant growth of the crypto market: "Some participants believed that risks to financial stability related to crypto assets and decentralized financial platforms are emerging." Regarding stablecoins, the Fed mentioned potential operational risks, describing them as "another vulnerability in funding markets."

Bitcoin bulls undecided

The ratio of BTC buy-to-sell volume in perpetual swaps, a type of crypto derivative trading product similar to traditional futures, is currently positive, indicating bullish sentiment. However, over the past two weeks, buy volume has declined relative to sell volume, suggesting a lack of confidence among bullish traders.

Marcus Sotiriou, an analyst at UK-based digital asset broker GlobalBlock, said Bitcoin traders remain hesitant ahead of a possible Fed rate hike in March: "Data shows that the recent rally was mainly driven by futures, while spot has been selling off. Because the cumulative volume data (CVD) of spot BTC has been stagnant, while the CVD of futures has increased, indicating that this price increase is driven by speculation or hedging rather than real demand."