Cryptos hit as US Central bank raises rates 0.75 points
The much-anticipated Fed rate hike is now official, and it dealt a significant blow to the broader crypto market on Wednesday.
The Federal Reserve of the United States raised the policy interest rate by three-quarters of a percentage point, bringing it to a range of 3 to 3.25 percent.
This is a significant increase from March when the federal funds rate was close to zero, and the successive increases constitute the central bank's most rapid policy shift since the 1980s.
Bitcoin's (BTC) value varied in the hours following the news before plummeting in sync with US stocks in the afternoon.
According to Coingecko data, Bitcoin is currently trading at R330K, down 1.5% in the last 24 hours. The largest cryptocurrency was trading above R388K as recently as last week.
Ethereum's drop was less significant, but it was still more than R882 lower. Prices plummeted by more than 4% in both cases following the Fed's announcement of a rate hike. The price of Ether was recently about R22K, a 5.5% decline from the previous day. Since last week's Merge, the price of the second-largest cryptocurrency by market capitalization has been plummeting.
The broader cryptocurrency market opposes the Fed's rate hike
The Federal Open Market Committee (FOMC) has raised interest rates by 75 basis points three times in a row, illustrating how strong inflationary pressures have become in the United States. Clearly, the bitcoin market as a whole dislikes it.
Inflation-related economic data has been particularly important for the cryptocurrency market because it is prompting the Fed to boost interest rates.
As a result, cryptocurrencies have recently underperformed in response to the Fed's rate hike news. For example, after the Bureau of Labor Statistics released August inflation data, Bitcoin prices fell 5% and Ethereum prices decreased 7% in the next 24 hours.
"We have to get inflation behind us," Powell said after the meeting, according to The New York Times. "I wish there was an easy way to accomplish it, but there isn't." Powell's remarks emphasize the central bank's challenging situation. Inflation has remained persistently high, and it is proving difficult to control.
However, the extent to which cryptocurrency values will decline this year remains unknown. Even in the absence of negative news from inflation and the Fed rate hike, some experts anticipate Bitcoin will fall to the R176K level this year.
"I don't see crypto, particularly BTC and ETH, defying the Fed's impact any time soon," Riyad Carey, a research analyst at crypto data business Kaiko, said, adding that "crypto swings at the whims of the Fed."
Meanwhile, Michael Saylor, chairman and co-founder of MicroStrategy, predicted that Bitcoin might return to its November high of R1.2 million "sometime in the next four years" and reach R8.8 million within the next decade if its market capitalization reaches that of gold.
