How the latest Fed rate hike could affect crypto prices.
You can thank the Federal Reserve for this week's crypto volatility.
The Fed just announced another rate hike to combat inflation. Wednesday was the fourth straight rate hike since the start of the year.
This week's Fed meeting could be another rollercoaster for crypto investors. Bitcoin's price decreased at least 10% after the last three Fed meetings in March, May, and June.
Bitcoin's price fell during the week of March 13, the week of the Fed's second meeting this year, before rising. First raise since 2018: 0.25 percent.
Bitcoin's price soared after the Fed's May 3-4 meeting, then declined on May 6. The Fed authorized a half-point boost in May and a plan to decrease its $9 trillion balance sheet in June.
Bitcoin dropped to $17,500 after the Fed's June 14-15 meeting. Fed rates rose 0.75 percent.
While historical data doesn't clearly suggest how markets will respond in the future, especially in the volatile crypto market, analysts believe that investors can expect increased volatility this week following the Fed's rate rise announcement. The crypto market started the week gloomy, but prices rose after the news. As of Wednesday afternoon, bitcoin is trading about $22,000 and ethereum is around $1,500, both up more than 5% in 24 hours.
In the near term, bitcoin and other cryptocurrencies have sold off with risk assets as the speculative frenzy that defined investment in 2020 and 2021 slows.
This is happening amid rising recession fears, so this week's second-quarter GDP report and earnings reports are crucial. If the U.S. is in a technical recession, defined as two consecutive quarters of negative economic growth, the second-quarter GDP report on Thursday could cause "a load of mess" in the crypto market, says crypto analyst Wendy O.
"We've heard we'll raise rates by 75 basis points. If they issue rates at 75 basis points, the market shouldn't be bad, says O. The second-quarter GDP report could cancel it out.
Fed Meeting and Crypto Market
Experts predict aggressive rate hikes will keep crypto prices choppy in the short run.
Since 2022, stocks and cryptocurrencies have been highly connected. Both have struggled to gather momentum this year due to rising interest rates, inflation, and a probable recession. If the stock market declines because of the rate hike this week, the crypto market probably will too.
The Fed's June interest rate hike shook the crypto market, which was already in "crypto winter" mode with prices reduced across the board. Bitcoin and ethereum plunged 70% in June since last year's bull run.
Oanda's Edward Moya says investors are watching bitcoin, ethereum, and the crypto market for a "potential revisit of the June lows."
Moya thinks most crypto watchers expect greater deterioration. As global recession fears deepen, the spotlight will shift to Fed rate cuts.
It's hard to tell if the market has priced in this week's prospective rate hike, says Joshua Fernando, CEO of eCarbon, a blockchain tech business focusing on carbon emissions permits.
“75 basis points seems to be the consensus, so if something higher kills the equity market, I would anticipate the crypto market to follow suit,” Fernando says. "Versus for lesser rate increases. Fed advice is more crucial. Expect additional market suffering if the Fed anticipates significant rate rises until 2023"