The much-anticipated Fed rate hike is out now and, as expected, dealt a heavy blow to the broader crypto market on Wednesday.
The US Federal Reserve raised its policy interest rate by three-quarters of a percentage point, extending it to a range of 3 to 3.25 percent.
The number represents a huge increase from March, when the federal funds rate was near zero, and the subsequent hikes represent the central bank’s fastest policy change since the 1980s.
Bitcoin (BTC) fluctuated in price in the hour following the news, before matching U.S. stocks in the afternoon.
Bitcoin takes a beating, losing the $19,000 handle
As of this 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 traded above $22,000.
Ethereum’s decline wasn’t as severe, but is still down more than $50. After the Fed rate hike announcement, prices fell 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 around $1,250, down 5.5% from the previous day The price of the second largest cryptocurrency by market capitalization is falling from last week’s merge.
The broader crypto market abhors a Fed rate hike
Members of the Federal Open Market Committee (FOMC) have raised interest rates by 75 basis points three times in a row, indicating how serious inflationary pressures have become in America. Clearly, the broader cryptocurrency market dislikes this.
Since the Fed is raising interest rates due to inflation, inflation-related economic data is very significant for the cryptocurrency market.
As a result, cryptocurrencies have recently reacted poorly to reports of Fed rate hikes. For example, after the US Bureau of Labor Statistics reported August inflation data, Bitcoin fell 5% and Ethereum fell 7% over the next 24 hours.
“We have to get inflation behind us,” Powell was quoted as saying by the New York Times during his post-meeting news conference. “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 highlighted a difficult situation for the central bank. Inflation rates remain persistently high, and are proving difficult to contain.
However, it is still uncertain how much the crypto value could fall this year. Even in the absence of unfavorable news on inflation and Fed rate hikes, some experts believe that Bitcoin is still headed for a major decline in the $10,000 region this year.
“I don’t predict crypto, especially BTC ETHAnytime soon negates the Fed’s influence,” said Riyad Carey, a research analyst at crypto data firm Kaiko, another reminder that “crypto operates at the whim of the Fed.”
Meanwhile, Michael Saylor, chairman and co-founder of MicroStrategy, said Bitcoin could return to November’s $68,990 peak “within the next four years” and reach $500,000 in the next decade if its market capitalization matches 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
