How another Fed rate hike could affect Bitcoin’s price, based on these 4 charts

If your crypto investments see a little extra volatility next week, you can thank the Federal Reserve.

That’s because the Federal Reserve is expected to announce another big rate hike next week as it continues its efforts to stem stubborn inflation. The Fed raised interest rates by 0.75% at its last meeting in July, the fourth increase in a row since the start of the year.

If it’s anything like the last four Fed meetings, crypto investors could be in for another rollercoaster ride next week. Historical price charts show how bitcoin’s price fell by at least 10% or more after the March, May and June Fed meetings. While the fall after the July meeting was less severe, there is a clear pattern of Fed rate hikes corresponding to falls in the crypto market.

Here’s a closer look:

Although historical data does not clearly indicate how the markets will react in the future, especially in the volatile and unpredictable crypto market, it is a safe bet that investors should expect new volatility next week after the Fed’s next expected rate hike announcement.

Bitcoin and ethereum prices both rose over the weekend, with bitcoin trading above $22,000 on Monday and ethereum trading above $1,700. Bitcoin’s drop below $19,000 last week was its lowest since June. Neither of the two major cryptos has seen significant movement since the Fed meeting in July, although a series of mini rallies for each has at least given investors hope that they could be back on the upswing.

“The [Fed’s July] The decision gave optimism that the end of tightening is in sight, and that sparked a nice rally for risky assets that helped lift crypto, said Edward Moya, senior market analyst at Oanda.

But an uncertain economic outlook continues to hamper the crypto and stock markets, which have become increasingly aligned in recent months. And the possibility that the United States is either in or may soon be in a recession continues to loom large in the minds of Americans.

Why Fed rate hikes could affect the crypto market

Aggressive interest rate hikes are not positive for crypto prices, and experts say the dip is likely to continue in the short term.

Risky assets like stocks and crypto have been highly correlated since the start of 2022. Both have moved in unison and have struggled to gain any momentum this year as investors pull away in response to rising interest rates, rising inflation and a potential recession. If the stock market falls due to another interest rate hike, the crypto market is likely to as well – and vice versa.

The Fed’s rate hike in June was one of many factors that rattled the crypto market in particular, which was already in “crypto winter” mode with rates slashed across the board. Bitcoin and Ethereum fell more than 70% in June since the peak of last year’s bull run.

Investors are keeping a close eye on bitcoin, ethereum and the broader crypto market for “possible retests of the June lows,” according to Edward Moya, a senior market analyst at Oanda.

“The majority of crypto watchers are still waiting for further weakness,” says Moya. “As the global recession picks up, the focus will shift to how soon the Fed will cut interest rates.”

In general, it’s hard to know if the market has already priced in another potential rate hike, said Joshua Fernando, crypto expert and CEO of eCarbon, a blockchain technology company focused on carbon emission allowances. But there’s more experts are looking for than just another potential rate hike.

“If the Fed signals strong rate hikes through 2023, expect more pain in the markets,” says Fernando.

What does it all mean for crypto investors?

Any significant development with the Fed, corporate earnings, or other economic factors should not drastically change your long-term crypto investment strategy.

If anything, it’s a reminder to investors that crypto-assets come with additional risk and volatility, especially in times of economic and political uncertainty. Despite the positive momentum of the past week, the crypto market is still nowhere near the highs it reached last year – with bitcoin and ethereum still down over 50% since November.

Given crypto’s history of volatility, prices are just as likely to fall back as they are to continue climbing – and it’s extremely difficult to predict with certainty where they will go next.

With so much financial uncertainty in the air, now is the best time to play it safe by allocating no more than 5% of crypto to your investment portfolio and investing only what you are willing to lose. Always make sure your financial bases are covered – from your retirement accounts to emergency savings – before putting any extra money into a volatile, speculative asset like crypto.