Bitcoin falls as Fed again raises interest rates to fight inflation

The price of Bitcoin fell sharply after the Federal Reserve announcement that it would raise interest rates by 75 basis points to combat skyrocketing inflation.

The largest cryptocurrency by market capitalization fell below $19,000 after the announcement before rebounding amid widespread market volatility. It is now trading at about $19,039, down about 1% in the last hour. Bitcoin is also down approx. 5.7% in the last seven days.

Market analysts had expected the Fed to raise interest rates again today, this time by between 75 and 100 basis points. Bitcoin, other cryptocurrencies and stocks seem to have priced in those expectations this week, though that didn’t stop dodgy traders from selling lower today. Stocks also fell on the news, with the Dow Jones and S&P 500 both down about 0.70% at the time of writing.

Central banks – not just the Federal Reserve – have raised interest rates to control rising prices. The Fed has been particularly aggressive in its approach because inflation in the US is at a four-decade high, causing investors to look to safe havens like the US dollar and avoid “risky” assets like stocks and crypto.

In fact, this year Bitcoin has traded mostly like a technology stock, according to Arcane Research data. It’s also taken a beating: it’s currently down 70% from its November 2021 record of $69,044.

While the dollar has climbed steadily – and today was no exception: before Fed Chair Jerome Powell spoke, it had already touched a new high in two decades, fueled in part by Russian President Vladmir Putin’s decision to step up in Ukraine.

Edward Moya, OANDA senior market analyst for the Americas, said Decrypt that it was a “troubled market environment”, but there was light at the end of the tunnel. “I think by and large a lot of Wall Street expects the Fed to remain committed to fighting inflation which is hard on risky assets — like crypto,” he said.

“It’s a wait-and-see approach: long-term investors are still committed to crypto and they will be unaffected by today’s decision; they expect crypto to trade on its own fundamentals, eventually – not like tech stocks,” he added.

Darius Sit of Singapore-based crypto investment firm QCP Capital told Decrypt that while Bitcoin has been trading as a “macro risk asset”, it may “break that correlation” in the future.

Ethereum, the second largest digital asset, did not fare much better after the Fed’s policy decision. The asset is down 1% in the last 24 hours, trading at $1,328.

The asset, which notwithstanding completes a long-awaited and much-publicized move to a proof-of-stake blockchain last week, has struggled to gain momentum: over the past seven days, its price has dropped 15%.