October 6, 2022

The long-awaited Fed rate hike is now out and, as expected, dealt a heavy blow to the broader crypto market on Wednesday.

The US Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point, widening it to a range of 3 to 3.25 percent.

The number represents a huge increase from March, when the federal funds rate was close to zero, and the latter hikes represent the fastest shift in central bank policy since the 1980s.

Bitcoin (BTC) fluctuated in value in the hours following the news, before falling in tandem with US stocks in the afternoon.

Bitcoin takes a beating, loses $19,000

At the time of writing, Bitcoin is trading at $18,730, down 1.5% in 24 hours, according to data from Coingecko. As recently as last week, the largest cryptocurrency was trading above $22,000.

Ethereum’s decline was not as severe, but it is still more than $50 lower. After the Fed’s rate hike announcement, prices fell by more than 4 percent in both cases.

Bitcoin (BTC) price as the Federal Reserve announced its latest rate increase. Image: CoinGecko

Recently, the price of Ether was approximately $1,250, down 5.5% from the previous day. The price of the second largest cryptocurrency by market capitalization has been falling since last week’s merger.

The broader crypto market hates the Fed rate hike

Members of the Federal Open Market Committee (FOMC) raised interest rates by 75 basis points three times in a row, indicating how severe inflationary pressures have become in America. Clearly, the broader cryptocurrency market doesn’t like it.

Since inflation causes the Fed to raise interest rates, economic data related to inflation has been very significant for the cryptocurrency market.

As a result, cryptocurrencies recently reacted poorly to the report of a Fed rate hike. For example, after the US Bureau of Labor Statistics released August inflation data, Bitcoin prices fell 5% and Ethereum prices fell 7% in the next 24 hours.

“We have to put inflation behind us,” Powell was quoted as saying by the New York Times during his press conference after the meeting. “I wish there was a painless way to do it, but there isn’t.”

Federal Reserve Chair Jerome Powell. Image: Getty Images

Powell’s words highlight the difficult situation for the central bank. The rate of inflation remains persistently high and has proven difficult to contain.

However, it is still uncertain to what extent crypto values ​​may fall this year. Even in the absence of negative news about inflation and Fed rate hikes, some experts believe Bitcoin is still headed for a big drop to $10,000 this year.

“I don’t predict cryptocurrencies, especially BTC and ETHwhich will soon reject the Fed’s influence,” said Riyad Carey, an analyst at crypto data firm Kaiko, adding that this is another reminder that “crypto is moving at the Fed’s whims.”

Meanwhile, Michael Saylor, president and co-founder of MicroStrategy, said that bitcoin could return to the November high of $68,990 “sometime in the next four years” and reach $500,000 in the next decade if its market capitalization equals that of gold.

BTC total market cap at $356 billion on the daily chart | Source: TradingView.com

Featured image from The Crypto Basics, Chart: TradingView.com

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