Bitcoin Rises After Fed Rate Hike
Most cryptocurrency prices rose on Wednesday after the Federal Reserve raised interest rates by 0.75 percentage points in a continued effort to ease inflation.
Bitcoin, the most popular cryptocurrency, was up 1.5% at $19,365 at last check, while ethereum was down 0.2% at $1,353, according to CoinDesk.
Reaction from crypto investors was mostly muted as bitcoin and ethereum also fell slightly before reversing course after Fed Chairman Jerome Powell spoke about the latest rate hike.
A big increase in valuation was the 4.1% rise to $54.46 in litecoin.
The Federal Reserve delivered its third big rate hike in a row on Wednesday, raising its target rate by 0.75 basis points, the most aggressive tightening on record.
Powell said he sees “ongoing gains” in the months ahead despite a weaker forecast for the world’s largest economy.
“The road has obviously narrowed based on events beyond our control,” he said. “We try not to make a mistake. The risk of doing too little … just increases the cost of dealing with it later.”
Bitcoin has been in a turbulent period marked by a drop in value of more than 72% since its peak in November.
Sharp inflation rates have had a negative impact on stocks and cryptocurrency as well as the broader economy, including wages and the cost of food, transportation and housing, Jodie Gunzberg, CEO of New York-based CoinDesk Indices, told TheStreet.
“This has a major negative impact on stocks and most assets from its negative impact on earnings, the reduced present value of future earnings for stocks (since they are discounted to higher prices), and less money and credit to buy investments, ” she said .
Today’s rise in bitcoin prices came after a recent decline on reports that the consumer price index for August rose 8.3% year-over-year.
The high inflation rate resulted in the CoinDesk Bitcoin Price Index falling 15.3%, which was 2.5 times more than the S&P 500.
“The previous drop in the price of bitcoin likely reflected the expectation that the Fed would respond to the high inflation rate by significantly raising interest rates this week, which generally strengthens the dollar,” Gunzberg said.
Since BTC is priced in US dollars, the rising dollar acts as a headwind and “even more so now given the economic situations in Japan and Europe,” she said. “Since this has been going on for a while, it’s not surprising to see little reaction to this Fed meeting.”
Rising interest rates not only reduce the money and credit available to buy investments. The rise in interest rates in the US is driving up demand for the dollar even more, as Japan does not appear to be raising the rate despite inflation. Europe’s economy is struggling with high inflation and a likely recession fueled by Russia’s attack on Ukraine, which pushed up energy prices, she said.
“As long as the US dollar continues to climb, there will likely be a headwind for crypto,” Gunzberg said.
