After the U.S. Federal Reserve raised the federal funds rate by 25 basis points, BTC dropped by about 1%. Fed Chairman Jerome Powell pointed out that the central bank left out words that could have signaled future rate hikes.
After the U.S. Federal Reserve did what was widely expected and increased interest rates by 25 basis points (bps), the price of bitcoin (BTC) fell to below $28,500. As a result of the hike, the target range for the federal funds rate is now between 5% and 5.25%.
The leading digital currency by market cap has lately been trading near $28,350, down approximately 1% in the last 24 hours.
After 14 months, the Fed finally decided to raise rates again on Wednesday. The Federal Open Market Committee (FOMC) warned in a statement released with the rate hike that “tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation” and that the committee will continue to monitor inflation concerns closely.
Although prices have “moderated somewhat since the middle of last year,” Fed Chair Jerome Powell said in a press conference after the rate announcement that “inflation pressures continue to run high” and that “the process of getting inflation back down to 2% has a long way to go.”
In addition, Powell stated that the decision to suspend rate hikes “was not made today,” though he did remark that the present statement did not suggest any further rate hikes. Noting the unpredictability of credit conditions, he added, “The assessment of the extent to which additional policy firming may be appropriate is going to be a continuing one, meeting by meeting.”
“The possibility of a moderate recession is there,” Powell said.
Over 93% of traders expect the Federal Reserve to pause its diet of rate hikes at the June policy meeting, according to the CME FedWatch Tool.
The value of Ether (ETH), the second-largest cryptocurrency by market capitalization, has increased by about 0.3% as of late, trading at around $1,878. For the day, the Market Index (CMI), a broad gauge of the cryptocurrency market’s health, was down 1%.
Dexterity Capital managing partner Michael Safai predicted “mixed outcomes” for crypto traders in the wake of the recent Fed decision. The Fed may have toned down its warnings about future rate hikes, but it has left the door ajar by indicating that it will base future decisions on macro data. Safai noted in an email response that while inflation data is getting better, it’s still not good enough to get crypto traders excited.
He continued, “Crypto is quiet right now, which indicates that there isn’t enough exit velocity for the top 10 currencies to break out of the macro connection. Until we have a better idea of where inflation is headed, bitcoin and ether are likely to remain range-bound. If the economy continues to improve slowly, trading may be slow this summer.
There will be two consumer pricing index (CPI) inflation readings before the Fed’s next meeting in mid-June, as pointed out in an email by Greg Magadini, director of derivatives at crypto analytics business Amberdata, before the Fed’s decision.
According to Magadini, macro factors have been the primary drivers of BTC this year, with Wednesday’s rate hike already factored in.
Wednesday was a bad day for stock markets across the board, with the S&P 500 ending the day down 0.7%. The Dow Jones Industrial Average (DJIA) fell 0.8%, while the tech-focused Nasdaq Composite fell 0.4%.
On the bond market, the yield on the two-year Treasury note recently decreased by 12 basis points, to 3.86%, and the yield on the 10-year Treasury note dropped by 7 basis points, to 3.35%.
Investors in cryptocurrencies have been perplexed by the potential market effects of the recent bank collapses and crypto regulatory wrangling.
“Bitcoin still remains anchored and is unlikely to rally above the $30,000 level until the U.S. gets some regulatory clarity,” Edward Moya, senior market analyst at foreign exchange market maker Oanda, wrote in a note published on Wednesday.
Meanwhile, a chart by crypto data firm Kaiko showed that the market depth (a measure of liquidity) for Bitcoin and Ethereum (BTC and ETH) has dropped to levels not seen in nearly a year.
Even though bitcoin’s value has increased by over 70% this year, trade volume on centralized exchanges is down from the same time last year, according to Dessislava Ianeva, a research analyst at Kaiko. The low volume, she said, may have been due in part to “greater macro and regulatory uncertainty.”
However, “market makers are still cautious about adding liquidity and have likely revised their risk management strategies,” Ianeva noted. She also noted that the liquidity deficit caused by the November collapse of the FTX exchange and its trading arm, Alameda Research, is “proving persistent.”
With any luck, the market for digital assets will become more liquid again, and the popularity of such asset classes will grow. Bitcoin, according to Dexterity Capital’s Safai, will continue to follow the broader markets until that point is reached or a huge headline either reaffirms or challenges crypto’s appeal.