This Is How The Last Fed Rate Hike Affects Crypto

Crypto

✍️ 22 September, 2022 - 10:30 👤 Editor: Jakub Motyka

The Federal Open Market Committee members increased interest rates by 75 basis points on September 21. Consequently, cryptocurrencies responded in kind with more volatility. It marks the third consecutive time that the US central bank is increasing rates by such a magnitude.

The monetary decision is in response to the elevated inflation rate. August’s Consumer Price Index data showed commodity prices at as high as 0.6%, excluding food and energy prices. Following the hike, the policy rate now ranges between 3-3.25%. It is the highest rate in 15 years

Although the crypto space had a moderate reaction, the actions of the hawkish Fed continue to subdue the sector.

Crypto Market Had Priced-In the Rate Hike

The crypto market was already facing volatility even before the Fed’s announcement. At the start of the week, Bitcoin (BTC) dipped to 18k before rebounding to 19.5k. After the news came out, the largest crypto slipped again to trade below the $19k handle.

At the time of writing, BTC was exchanging for $18,737. The price represents a 0.5% decrease in the past day and a 6% decline in the past week. The effect was more severe in Ethereum (ETH). Its native ether token dipped 4% and 20% in the same durations to trade at $1,265.

There was equally a slight volatility felt among altcoins. Cardano (ADA), Solana (SOL), and ChainLink (LINK) dipped 0.2%, 1.18%, and 02.6% in the same period.

What Fed Rate Hikes Means To Cryptos

From the latest trends, digital assets have remained at the mercy of economic data. The asset class has also reacted to inflation reports and stock market trends. So what does it mean?

According to Joe DiPasquale, the cryptocurrency hedge fund manager at BitBull Capital CEO, the trend is far from over. DiPasquale believes that the Fed will not relent until it meets its inflation target of 2%. Hence, cryptos could remain under pressure, at least for the medium term.

The rate hikes were not specific to the US market alone. The European Central Bank and Bank of Canada similarly increased their benchmark rates by 75 basis points. DiPasquale believes that the same signifies a further dampened crypto market.

Generally, as inflation rises and prices jump, investors tend to be risk-averse. That means they avoid volatile assets like cryptos and stocks and prioritize basic items. The high cost of accessing capital for institutional investors also translates to lower investment in the sector.

Latest news about cryptos:

Jared Kirui
Latest posts by Jared Kirui (see all)

Image sources:

Leave a Reply

Your email address will not be published. Required fields are marked *

Go up