Leading cryptocurrency darling Bitcoin clung to the waters and stabilized as a result of the federal reserve’s decision to further raise interest rates. The 75 BP raise came as expected, leading to the overnight rate of a 1.5 to 1.75% limit. The 75 basis point increase is the largest to occur (monthly) since 1994, as the longest bull market beginning with the housing crash of 2008-2009 came to a screeching halt these past couple of years.
Bitcoin, and the economy as a whole, has still not weathered the storm – as the Fed plans to increase rates incrementally by another 175BP over their instituted agenda over the course of this year. Investors will keep a close eye on capitalization and investor sentiment within the secondary markets, as the bear flags signal sheepish hands, on what were otherwise overactive portfolios.
What Happened After the Fed Hiked Rates?
Immediately following the decision, the market reacted negatively as the weight of the news was not priced in. Bitcoin instantly took a nosedive to about $20,400 and ended the trading day back at $21,900. Bitcoin is currently down 54.55% YTD, with -50.60% only in the last three months.
This kind of selling pressure is closely related to the traditional financial markets and is seen as an overreaction, creating a downward selling pressure that most are not accustomed to in the crypto markets. Ethereum and its parent, Ether, remain close behind crypto giant Bitcoin – down about 70%, but had a quick recovery of about 10% in a previous single-day trading session.
Crypto markets seem to be generally less affected than their long-running exchange counterparts but are largely following the trend of the economic outlook in the secondary market. This is due to investor sentiment and a lack of data.
The crypto markets are still relatively in their infant stage and have not braved a long-running bear market, even if they have gone through periods of flash crashes and “fad” feedback. Here is the YTD performance in percentages for the top 10 coins, via cryptorank.io:
Bitcoin (BTC) -54.5
Ethereum (ETH) -68.9
Tether (USDT) -0.11
USD Coin (USDC) +0.01
BNB (BNB) -56.9
Binance USD (BUSD) -0.02
Cardano (ADA) -62.0
XRP (XRP) -60.6
Solana (SOL) -78.1
Polkadot (DOT) -70.0
Crypto vs. Fiat – Best Tool Against the Bear
Due to worsening global conditions, the Fed’s decision to review has since November of 2021 discouraged investment in riskier or novel assets, as the reserve seeks to offload its balance sheet by raising interest rates. Investors and arbitrageurs have grown accustomed to the low-interest-rate environment, as loans and leveraged investments seemed to be the norm for years, as well as switching portfolios to periods of growth rather than value or income.
The real impact comes from larger players, as they have switched algorithms to gobble up any existing market depth and offload when certain green flags are mentioned within the media or other trigger points.
This can be seen throughout the crypto markets, as noted above in the table. Tether coins and other linked assets that bind themselves in one way or another to the USD fiat currency seem to remain relatively stable, signaling that, other than gold, the US currency is still considered the safest storage of value by both retail and institutional investors. Further confirmed by the relative lack of movement in other traditionally defensive sectors, such as utilities and consumer staples.
What’s Next?
The situation is tense and riddled with anxiety. If investors had a surefire way of knowing that the 75 basis point increase would end here, markets could relax and take a breather. With at least four more checkpoints to get through, the Fed could indirectly affect the crypto markets for many years to come.
One thing’s for sure, the psychological price level support of $20,000 for Bitcoin seems to be holding, for the time being.
Sources: https://finance.yahoo.com/news/bitcoin-fed-decision-163526591.html (Rewrite)
https://cryptorank.io/performance (YTD quotes)
