After weeks of intense speculation, the U.S. Federal Reserve has increased benchmark interest rates by 0.75% as inflation levels have soared. A statement from the Fed states that high inflation levels, increasing energy and food prices and the Russia-Ukraine war have caused upward pressure on inflation and impacted global economic activity. The most recent interest rate increase, which is the fourth consecutive such hike this year, will most likely increase volatility within the cryptocurrency market.
The Fed seems hell-bent on forestalling inflation and has taken an increasingly hawkish stance to ensure inflation remains at 2% over the long term. The most recent interest hike will most likely throw another monkey wrench at the crypto market soon after the industry saw historically low prices and lost billions of dollars in value. Bitcoin, currently the largest cryptocurrency in the world, has seen its prices drop by at least 10% after the previous three Fed meetings.
In March, the price of Bitcoin briefly declined after the Fed hiked interest rates by 0.25%. The crypto’s prices spiked momentarily after the May meeting but began to drop on May 6.
Last month, Bitcoin prices went down to as low as $17,500 following the June meeting where the Federal Reserve approved a 0.75% interest rate hike. Even though previous meetings have been followed by drops in crypto prices, it is nigh impossible to predict how the volatile crypto market will react in the future.
Most experts still agree that the recent Fed announcement will introduce new volatility into the market this week. So far, the market has had slightly bearish sentiments, with prices increasing slightly after the announcement. Bitcoin is currently trading at more than $23,000, and Ethereum is trading at above $1,700. Both Bitcoin and Ethereum saw their prices go up by more than 10% 24 hours after the interest rate hike.
According to Oanda senior market analyst Edward Moya, the hike increased optimism about the end of tightening and resulted in a rally of risky assets such as crypto. He states that investors are watching the crypto market in anticipation of the lows of June when Bitcoin and Ethereum fell by more than 70%. Given how correlated the stock and crypto market has been in the past couple of months, the crypto market may dip if the stock market falters following the Fed announcement
eCarbon CEO and cryptocurrency expert Joshua Fernando says that further guidance from the Fed will be crucial in determining how the crypto market fares. If the Fed indicates that there will be strong interest rate hikes in 2023, the crypto market will experience even more volatility.
Entities such as Stronghold Digital Mining Inc. (NASDAQ: SDIG) are likely to watch how cryptos respond to any future rate hikes since this could have a direct effect upon the market these companies serve.
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