Bitcoin Sees Bullish Price Spike As Fed Raises Interest Rates

May 4, 2022 9:37 pm

The Federal Reserve just raised the rates by half a point which was the highest rate hike that has ever been done in the past 20 years.

Many had expected the Fed to increase the rate significantly in order to battle the high inflation rates which is now over 8%.

The Fed will likely continue doing 0.5 point hikes for the rest of 2022 and beyond which means that the market may have already priced this in already.

As a result of the higher rates, the price of Bitcoin responded positively with it increasing roughly 6% immediately after the raise.

CNBC reports:

The price of bitcoin climbed about 6% Wednesday after the Federal Reserve raised rates by half a point —the biggest hike in about 20 years — as expected.

At one point amid Powell’s afternoon remarks, bitcoin climbed as high as $40,002.75. Crypto assets across the market rose with it.

“Any FOMC guidance that does not include a 0.75 percent interest rate increase would be bullish for both crypto and equities,” said Nick Mancini, director of research at crypto sentiment analytics platform Trade The Chain.

“We believe that the market has priced in continued hikes of 0.25% to 0.50% moving forward for 2022. This gives the market certainty, which, in turn, breeds bullish price action.”

Right now, many do see digital assets like crypto as an alternative method to hedge against the high inflation which is currently the highest it has been for the past four decades.

Investors believe that any hike that is below 75 points is actually better than expected and would result in a bullish rally.

As it is right now, the price of Bitcoin is still far from its all time high at around $68,000 as the data currently shows that it is still highly correlated with the stock market.

Rate increases that happen to be less than investors expected will result in rallies for both crypto and equities usually.

Bitcoin.com reports:

Speaking to reporters after the FOMC decision, Fed chair Jerome Powell said: “Inflation is much too high and we understand the hardship it is causing and we are moving expeditiously to bring it back down.”

Despite the rate increase, crypto markets were positive on Wednesday as the crypto economy rose 5.7% over the last 24 hours.

The price of bitcoin (BTC) jumped 5.6% higher and ethereum (ETH) spiked by 6.5% against the U.S. dollar.

Furthermore, stocks rallied as well on Wednesday afternoon, as the top U.S. stock indexes (NYSE, Dow Jones, Nasdaq, S&P 500) saw significant gains.

For instance, the Dow Jones Industrial Average jumped over 900 points on the bet that the central bank’s move was a correct one.

However, there is a chance that one day the crypto market will decorrelate itself from the broader equities market as crypto is fundamentally a different asset class that should be affected differently by aggressive Fed policy.

Of course, the crypto market still needs time to mature to that point as riskier assets are always the first to be affected in times of trouble.

If the Fed continues to do predictable rate hikes from on, the price of Bitcoin could continue to climb positively for the rest of the year.

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