June 7, 2023

The much-anticipated Federal Reserve rate hike is now over and, as expected, hit the broader crypto market hard on Wednesday.

The U.S. Federal Reserve raised its policy rate by three-quarters of a percentage point, widening it to a range of 3% to 3.25%.

The figure was up sharply from March, when the federal funds rate was near zero, and the subsequent hike represented the fastest policy shift by the central bank since the 1980s.

The value of Bitcoin (BTC) fluctuated in the hours following the news before falling in line with U.S. stocks in the afternoon.

Bitcoin takes a hit, loses $19,000

As of this writing, Bitcoin is trading at $18,730, down 1.5 percent in 24 hours, according to Coingecko. Just last week, the largest cryptocurrency traded above $22,000.

Ethereum’s fall was less severe, but it was still down more than $50. Prices fell more than 4% in both cases following the Fed rate hike announcement.

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

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

The broader crypto market hates Fed rate hikes

Members of the Federal Open Market Committee (FOMC) raised interest rates by 75 basis points three times in a row, showing the severity of inflationary pressures in the United States. Clearly, the broader cryptocurrency market doesn’t like it.

Inflation-related economic data is very important to the cryptocurrency market as inflation leads the Federal Reserve to raise interest rates.

As a result, cryptocurrencies have recently reacted poorly to the Fed rate hike report. For example, after the U.S. Bureau of Labor Statistics released inflation data for August, the price of Bitcoin fell by 5% and the price of Ethereum fell by 7% in the ensuing 24 hours.

“We have to get rid of inflation,” Powell was quoted as saying by The New York Times at a post-meeting news conference. “I wish there was a painless way to do this, but there isn’t.”

Federal Reserve Chair Jerome Powell. Image: Getty Images

Powell’s words underscore the central bank’s predicament. Inflation has been high and has proven difficult to control.

However, the extent to which the value of cryptocurrencies will decline this year remains uncertain. Even without the unfavorable news from inflation and Fed rate hikes, some experts believe that Bitcoin will still fall sharply to the $10,000 region this year.

“I didn’t foresee crypto, especially BTC and Ethereum, will soon resist the Fed’s influence,” said Riyad Carey, research analyst at crypto data firm Kaiko, adding that it was another reminder that “cryptocurrency moves on the whim of the Fed. “

Meanwhile, MicroStrategy chairman and co-founder Michael Saylor said that if bitcoin’s market cap matches gold, bitcoin could return to November “sometime in the next four years.” highs of $68,990 and $500,000 over the next decade.

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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