As the Fed increases interest rates by 75 basis points, as expected by the market, volatility affects the cryptocurrency market.
Following the Federal Reserve's statement that it would raise interest rates by 75 basis points to fight sky-high inflation, the price of Bitcoin fell significantly.
Following the announcement, the largest cryptocurrency by market capitalization fell below $19,000 before rising amid high market volatility. It is currently trading for about $19,039, down about 1% from an hour ago. Additionally, over the last seven days, Bitcoin has decreased by about 5.7%.
Market analysts had predicted that the Fed would increase interest rates once again today, by 75 to 100 basis points. Although cautious traders continued to sell down today, it appears that this week's predictions have been mostly factored into the price of bitcoin, other cryptocurrencies, and stocks. Following the announcement, stocks also fell; at the time of writing, the Dow Jones and the S&P 500 had both down by about 0.70%.
To rein down rising prices, central banks—not only the Federal Reserve—have been hiking interest rates. With U.S. inflation at a four-decade high and investors avoiding "risky" assets like equities and cryptocurrency in favor of safe havens like the U.S. dollar, the Fed has been unusually active in its approach.
According to statistics from Arcane Research, Bitcoin has actually been trading most like a tech stock this year. It has also suffered losses; now, it is down 70% from its record high of $69,044 set in November 2021.
The dollar has been steadily rising, and today was no exception: before Fed head Jerome Powell spoke, it had already surpassed a two-decade high, in part due to Russian President Vladmir Putin's decision to escalate the situation in Ukraine.
There remained hope despite the "troubling market situation," according to Edward Moya, senior market analyst for the Americas at OANDA. He claimed that, for the most part, Wall Street was counting on the Fed to continue fighting inflation, which was challenging for riskier assets like cryptocurrency.
Long-term investors are still committed to cryptocurrencies and won't be alarmed by today's decision. They anticipate that eventually, unlike tech stocks, cryptocurrencies will trade on their own fundamentals.
Bitcoin has been trading like a "macro risk asset," but Darius Sit of Singapore-based cryptocurrency investment firm QCP Capital told Decrypt that eventually it might "break that association."
The second-largest digital asset, Ethereum, didn't fare much better following the Fed's policy choice. The item is currently trading for $1,328, down 1% over the last 24 hours.
The asset has struggled to acquire traction; even after making the long-awaited and much publicized switch to a proof-of-stake blockchain last week, its price has fallen 15% over the last seven days.
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