Bitcoin rose about 6% on Wednesday after the Federal Reserve, as expected, raised interest rates by 50 basis points, the biggest increase in 20 years. Bitcoin started climbing ahead of the end of the Federal Open Market Committee meeting. The 50 basis point rise was widely expected. Bitcoin's surge accelerated after Federal Reserve Chairman Jay Powell ruled out a 75 basis point rate hike.
"Raising rates by 75 basis points is not something the committee is actively considering," Mr Powell said. I think the expectation is that we will start to see inflation stabilise." Bitcoin climbed as high as $4,0002.75 during Powell's speech, Observed Zhitong Finance. The entire crypto asset market also rose.
Bitcoin briefly hit $40,000 as Fears fade over Fed Rate hike by 75 basis points
"Any guidance from The FOMC that doesn't include a 75 basis point rate hike is positive for cryptocurrencies and stocks," said Nick Mancini, head of research at Trade The Chain, a cryptocurrency sentiment analysis platform. We think the market has already priced in further 25bp and 50bp hikes in 2022. This brings certainty to the market, which in turn leads to bullish price action."
Joe Orsini, head of research at Eaglebrook Advisors, noted that with inflation at 40-year highs, the market expects the most aggressive tightening at the same time.
"These expectations point to a 'not too bad' rally in bitcoin if the Fed is not as hawkish as expected," Orsini said. The first sign was today when Powell ruled out a 75 basis point rate hike -- that started the rally."
Bitcoin has struggled to return to its all-time high of around $68,000 since November as risky assets have been battered all year by rising inflation, the War in Russia and Ukraine and fed tightening. However, bitcoin's notorious volatility has declined recently and is much lower than the share price volatility of some tech darlings such as Netflix (NFLx.us), PayPal(Pypl.us) and Meta Platforms(fb.us); This has been helped by the fact that bitcoin has been trading in a narrow range of roughly $38,000 to $42,000 since the beginning of 2022.
"The Fed has some room to be patient if there are signs that inflation is peaking," Orsini added. Less aggressive tightening will benefit bitcoin, Ethereum and other digital assets, which continue to rebound more strongly than traditional equities."
Bitcoin's rally has coincided with a rally in the broader stock market. On Wednesday, the S&P 500 closed up 3%, the Nasdaq rose more than 3% and the Dow rose 2.81%. Bitcoin continues to lead price movements across the cryptocurrency market, and it also remains highly correlated with stock market movements.
"The correlation between digital assets and traditional markets remains significant," said Josh Olszewicz, director of research at Valkyrie Funds. The DOLLAR index and 10-year yields reversed sharply during the session, while the S&P 500 and Nasdaq edged higher and Bitcoin was up nearly 3.5% from its intraday lows."