Upcoming Fed Rate Hike Has Crypto Traders Split On What Will Happen

By Kevin • July 27, 2022 3:03 pm • Comments

One of the things that all speculators within the crypto industry have their eyes on these days is what the Federal Reserve will do regarding rate hikes.

After all, the concern of inflation has pressured the central bank to start raising rates, but this may come at the cost of continuing the bear markets that are being seen across all financial markets with crypto being one of them.

It is estimated that the Federal Reserve will raise the benchmark tomorrow by 75 basis points and many are now predicting how this would affect the price of Bitcoin.

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Some argue that Bitcoin is like digital gold which serves to hedge against inflation while others see it as a much more volatile asset that should be avoided.

CoinDesk reports:

Griffin Ardern, a volatility trader at crypto asset management firm Blofin, foresees a bitcoin price drop after the Fed lifts rates by 75 basis points (bps) to the 2.25%-2.5% window.

“Considering that the overall risk level of the crypto market has not returned to a reasonable level, it is very likely that the BTC price will drop by more than 10% after the Fed rate hike,” Ardern said.

The Fed’s liquidity-sucking measures, such as rate hikes and balance sheet runoffs, have roiled asset markets in the past few months. Bitcoin has declined by over 50% since the central bank kicked off the tightening cycle in March.

“Bitcoin and the broader crypto market may see another relief rally following the 75 basis point rate hike after which we expect markets to trade sideways, while ether (ETH) may outperform in anticipation of the merge,” according to Dick Lo, founder and CEO of quant-driven trading firm TDX Strategie.

So far, the price of Bitcoin has dropped by around 7% as the market prepares itself for the rate decision.

This is likely due to the fact that many investors are more interested in protecting themselves and are taking lower risks during these times.

Besides the rate hike itself, other things that are affecting the crypto economic situation also include inflation and unemployment risks.

However, it seems that the Federal Reserve is choosing to downplay such recession risks in order to singlehandedly focus on combating inflation before its too late.

CoinDesk concludes:

Risk assets, like bitcoin, could rally if the Fed’s policy statement or Chair Jerome Powell sound increasingly concerned about recession risks, bolstering market expectations for a policy pivot (from tightening to easing) in 2023.

However, observers expect the Fed to retain its single-minded focus on controlling inflation while downplaying recession fears.

“There is no doubt that Powell will pivot, but the pivot will not be this year, at least until November, and there will be no significant reduction in rate hikes (like 25 bps).

The reason is that the Biden administration needs the Fed to join them in expressing its determination and confidence to fight inflation to win the midterm elections in November,” Blofin’s Ardern told CoinDesk.

According to Jon Turek, author of the Cheap Convexity blog, the Fed is likely to stick to the June script.

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