Bitcoin is losing ground ahead of a key Federal Reserve policy meeting, which could expose the bank’s intentions in the face of increasing inflation expectations.

According to information, the top cryptocurrency, which is seen as a hedge against rising prices by many investors, was trading near $55,000 at press time, down 3.3 percent on the day. The drop shattered any hopes of a repeat of Tuesday’s impressive rally from under $53,000 to nearly $57,000.

“We expect the Fed to continue quantitative easing while maintaining borrowing costs at record lows,” said Joel Kruger, currency strategist at LMAX Digital. “The main emphasis will be on interest rate forecasts and whether a better pandemic recovery outlook will lead to an earlier hike.”

Markets are pricing an early unwinding of stimulus in the form of interest rate hikes, with inflation expectations at a 13-year high and the economy showing signs of life.

According to Reuters, Eurodollar futures, which monitor short-term U.S. interest rate expectations, forecast a first rate hike in March 2023, up from late 2023 a few weeks ago. The 10-year bond yield in the United States has recently risen to over 12-month highs of 1.6 percent.

“We believe such a result would be supportive of bitcoin if the Fed steps back against market expectations and signals no rate increase until 2024,” Kruger said.

However, if the central bank signals an early reduction in stimulus, the cryptocurrency could face selling pressure, according to Kruger. When investors expect rate cuts, they usually buy inflation hedges, and vice versa.

Two-thirds of economists polled by Bloomberg expect policymakers to hold interest rates near zero until 2023. Furthermore, market pricing of rate hikes has been shown to be inaccurate in the past. According to Reuters, while investors expected a rate hike within 12-18 months of the 2008 crash, the Fed only raised rates for the first time in 2015.

Apart from interest rate forecasts, the emphasis will be on Fed Chair Jerome Powell’s reaction to the recent increase in bond yields and the central bank’s decision on the supplementary leverage ratio (SLR), a bank capital-adequacy metric. A lower SLR threshold potentially allows banks to grow their balance sheets more quickly, posing additional risk but freeing up capital for loans to governments, companies, and individuals.

“The market needs the SLR to be prolonged, as well as guarantees about yields. If the SLR isn’t extended and Powell manages to play rising yields down, “rates will be in chaos, leading other markets to fall,” trader Alex Kruger tweeted.

After the dramatic increase in the 10-year bond price, Bitcoin dropped by 20% in the last week of February, owing to market jitters in the United States.

Bitcoin bulls must now defend Tuesday’s low of $53,221 according to technical charts.

On Tuesday, Bitcoin shaped a “hammer candle,” suggesting the end of the pullback from the record high above $61,000 and the prospect of another leg higher. Because of its shape on the price chart, it’s called a hammer candle, and the trend appears bullish.

If Tuesday’s low is broken, the bullish setup will be invalidated. That would open the door for a drop to $47,000, a high level of support revealed earlier this month by the blockchain analytics firm Glassnode in a tweet.