Bitcoin Drops After Fed Announces More Rate Hikes

By Kevin • December 16, 2022 11:55 am • Comments

Bitcoin had caught some of the market attention when it finally reached $18k again for the first time in more than a month.

This indicated that there was still a lot of demand for the asset despite the prolonged crypto bear market and may indicate that there may soon be a recovery.

However, it seems that the market still reacts quite heavily to significant financial events such as the recent rate hike by the Federal Reserve.

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The Fed decided once again to raise the interest rate by 0.5 points which makes it the highest rate in the past 15 years.

Investors are speculating that the Fed will continue to do this consistently until it feels that it has inflation under control.

After all, inflation concerns have been troubling the entire economy and the traditional markets and it is clear that the Fed now sees it as the number one priority.

CNBC reports:

“Overall, bitcoin remains in an uptrend following its mid-November bottom,” said Lyn Alden, founder of Lyn Alden Investment Strategy.

“The year 2022 was characterized by a hawkish Fed and valuation reductions on equities and other assets,” she added. “Going forward into 2023, I think a slowdown in corporate earnings, rather than valuation compression, is likely what will keep pressure on equities while potentially allowing monetary assets such as bitcoin and precious metals to stabilize.”

Market sentiment remains low as investors monitor the continued fallout from the sudden collapse of FTX, which led to arrest and indictment of the once popular crypto exchange’s founder, Sam Bankman-Fried — although crypto prices have been relatively stable since the initial FTX-induced crash.

Meanwhile, Binance, the world’s largest crypto exchange, has seen billions of dollars in customer funds exit the platform this week amid scrutiny over its reserves, although data suggests those fears may be overblown.

So far, investors are expecting that the Fed will continue this aggressive monetary policy into the new year in 2023.

As for what this means for Bitcoin and the rest of the crypto markets, the result is still unclear.

Traditionally, the rate hikes means that the bear markets will continue for traditional markets, but there are suggestions from some experts that say that there may be a time one day where the crypto markets will decorrelate from the traditional stock market.

When that happens, it means that the crypto winter may soon come to an end and new capital may flood into the industry as a result.

DeCrypto.co concludes:

Most of the crypto market was immediately in the red following the announcement—just like U.S. stocks. Ethereum was trading for $1,301, down 2.5%; Dogecoin dropped by 3.5%.

Digital assets closely follow U.S. stocks because they are considered “risk assets”—assets like tech stocks or Bitcoin are more volatile in price than less risky assets like U.S. treasuries or dollars.

The central bank said in a statement: “The committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”

Following the announcement, the Dow Jones Industrial Average fell 109 points, or 0.3% after being 287 points higher earlier today; the S&P 500 dipped 0.5%.

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