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United States Federal Reserve System

Crypto Market Analysis Post Fed Rate Hike on Wednesday

Investors may thank the Federal Reserve if this week’s volatility of their cryptocurrency investments is increased. 

That’s because the Federal Reserve made a statement on Wednesday, and as expected there was another rate increase as the Fed works to combat persistent inflation.

  • After the U.S. Federal Reserve hiked interest rates but signaled that the pace of hikes could moderate, stocks and bitcoin both surged above $23,000.
  • Cryptocurrencies and American stocks have a strong relationship, especially the Nasdaq, which increased by 4% on Wednesday.
  • According to data from CoinGecko, at 3 a.m. ET on Thursday, bitcoin was trading at $23,168.88, up around 9% from the previous day.
  • Other digital currency also increased. At $1,645.56, ether was nearly 13 percent more expensive.

The Federal Reserve increased its benchmark interest rate by 0.75 percentage points on Wednesday in an effort to combat rising prices without sending the economy into a downturn. 

Jerome Powell, the head of the central bank, however, said that the rate increases might slow down, which spurred an equities surge on Wednesday that spread to Thursday’s trade in Europe and Asia.

Given that we now have two months until policymakers next discuss monetary policy, the conclusion of the Fed meeting on Wednesday creates a summer window for a Bitcoin relief rally, according to Antoni Trenchev, co-founder of the cryptocurrency wallet Nexo.

After many failed attempts this month, Bitcoin is attempting to stage a long-term rally. Since mid-June, the biggest cryptocurrency in the world has been trading between $20,000 and slightly over $24,000 after a severe drop this year erased 50% of its value.

Investors in cryptocurrencies may be in for another wild ride this week if this Fed meeting is anything like the previous few. 

The price of bitcoin decreased by at least 10% or more after the last three Fed meetings in March, May, and June, according to historical price trends.

Experts generally concur that investors should expect new volatility this week in the wake of the Fed’s anticipated announcement of a rate increase. 

This is despite the fact that historical data does not always accurately predict how markets will respond in the future, particularly in the volatile and unpredictable crypto market.

With bitcoin trading around $21,000 and Ethereum trading under $1,400 early in the start of the week, sentiment in the cryptocurrency market was already leaning slightly gloomy. Both have decreased by more than 5% since last week at this time.

Effect On Bitcoin, Ethereum And Major Cryptos

According to experts, the short-term price volatility is expected to likely persist as a result of Fed’s aggressive rate hikes

Since the beginning of 2022, risky assets like stocks and cryptocurrencies have been highly connected. 

Due to investors’ flight from the market in response to rising interest rates, soaring inflation, and a possible recession, both have been moving simultaneously and have found it difficult to gain any momentum this year. 

The crypto market will probably decline if the stock market does this week as a result of the rate hike, and vice versa.

The Federal Reserve’s interest rate hike in June was one of many factors that jolted the crypto market, which was already in “crypto winter” mode, with prices slashed across the board. 

Since the peak of last year’s bull run, Bitcoin and Ethereum have dropped more than 70% in June.

According to market analysts, investors are keeping a close eye on bitcoin, Ethereum, and the crypto market in general for a “possible retest of the June lows.” 

“The majority of crypto watchers are still awaiting further weakness,” Moya says.

“As global recession calls grow; the focus will switch to how soon the Fed will be cutting rates.”

It’s hard to tell if the market has already priced in the probable rate increase this week and whether the Fed would choose to raise rates by another 75 basis points instead of making a bigger change.

“A 75 basis points appears to be the consensus, so if we see something notably higher and it kills the equity market, then I would expect the crypto market to follow suit,” says Joshua Fernando, crypto expert. 

“Vice versa in the lower rate increase case. More important will be the guidance the Fed gives. If the Fed signals strong rate hikes through 2023, expect more pain in the markets.”

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Author

  • Zahari Rangelov

    Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.