Bitcoin price rises with other risk assets. Thanks The Fed.
It is another interest rate increase, but a marked decrease in the pace of tightening of the financial conditions after a wave of much larger increases last year. The Fed also repeated its forecast that it would raise interest rates at least two more times.
Markets rose during Fed Chair Jerome Powell’s question-and-answer session with reporters, where he noted that inflation has so far fallen rapidly and that the decision to raise interest rates further will depend on incoming economic data.
The price of Bitcoin has risen around 1.5% in the past 24 hours, hovering around $23,400. The biggest digital asset roared higher to start the year, gaining 40% as cryptos benefit from an improvement in investor risk appetite. While Bitcoin remains at just a third of its late-2021 peak, traders are increasingly optimistic that the bottom of a brutal bear market has already been hit – in the wake of the shock bankruptcy of FTX in November – and that cryptos are poised to march higher .
“Crypto fundamentals are taking a backseat here, and the primary driver is what the general appetite is for risky assets,” said Edward Moya, analyst at broker Oanda. “Bitcoin appears to have massive resistance at the $24,000 level, so if the rally stalls after the Fed and mega-cap tech earnings fireworks, a consolidation back toward $20,000 could happen.”
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Indeed, earnings on Wednesday from Meta Platforms (ticker: META ) — and peers Apple ( AAPL ) , Alphabet ( GOOGL ) and Amazon.com ( AMZN ) on Thursday — will hit tech sentiment, which is likely to spill over into crypto.
But the spotlight is on the Fed. Decades of high inflation and rising interest rates have been a key headwind for Bitcoin over the past year, with cryptos becoming more correlated with equities against a macro backdrop unfavorable to risk-sensitive assets. Investors hope the worst is over.
In its statement accompanying the rate hike, the Fed continued to state that it expected “ongoing increases” in the target range for the Federal Funds rate. The statement removed any language suggesting that the Covid pandemic and events in Ukraine contributed to inflationary pressures.
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Crucially, during his comments to reporters, Powell said he believed markets were already reflecting significantly tighter economic conditions. He attributed the market’s interest rate expectations, which are more dovish than those of Fed officials, to investors’ better view of how quickly inflation could fall.
For digital tokens and other risk assets, there was a significant turnout as Powell spoke. Beyond Bitcoin, Ether — the second-largest crypto — was up nearly 2% in the past 24 hours to $1,619.50. Smaller tokens Cardano and Polygon rose 5% and 10% respectively after the Fed’s release, after being down earlier in the day.
The recent rally in crypto appears to be largely built on sand, with Bitcoin’s eye-popping jump driven by low liquidity and technical factors, including a short squeeze pushing prices higher — not organic demand. The same trends that have helped drive prices up can accelerate a deep selloff.
Write to Jack Denton at [email protected]
