The crypto market reacted quickly — and predictably — to the Fed’s latest rate hike on Wednesday afternoon.
Both bitcoins and ethereum prices fell immediately after the Fed announced it would raise interest rates another 75 basis points. The crypto market was already in the middle of a rough week. On Monday, both tokens had fallen more than 10% over the past week.
The crypto has followed macro events closely, and over the past year the market has have always reacted negatively to rate hikes. On Wednesday, within minutes, the price of bitcoin jumped from around $19,500 to $18,900. Ethereum saw a more modest price drop, dropping over $50. Both declines signify a drop of more than 3% after the Fed’s announcement.
After an initial bounce immediately after these declines, bitcoin fell back to around $18,500 and ethereum fell back below $1,300 late Wednesday afternoon. But those cuts were still relatively small compared to previous Fed rate hikes. So what gives? It has to do with market expectations, experts say.
“It’s all about expectations, not exactly what’s happening, but what’s happening relative to expectations,” said Joel Kruger, market strategist at LMAX Group, a London-based fintech company that operates currency exchanges. currencies and cryptography. “Barring some wild price swings in the aftermath, things have gone as planned.”
Here’s what investors need to know about what’s happening with crypto today.
How Market Expectations Are Driving Crypto Prices Right Now
Experts expected the Fed to raise rates by 75 basis points. Because these predictions came true, the crypto market did not experience extreme volatility in its prices today, at least nothing out of the ordinary. This contrasts with July when the Fed announced its first hike of 75 basis points (which was significant).
The Fed has remained consistent in its message throughout this year. Fed Chairman Jerome Powell shared hawkish sentiments — indicating more aggressive action could be taken in the future — against inflation and further rate hikes in late August. As such, Wednesday’s news was fully in line with expectations, and so the crypto market hasn’t seen much upheaval, experts say.
“It’s a bit of a burger of nothing,” said Andy Long, CEO of White Rock Management, a digital asset mining company headquartered in Switzerland. “There was a 10-20% chance that something was a little more hawkish, but that didn’t happen. Everyone was expecting 75 [basis points]and so you can see this afternoon that the downward pressure is easing a bit.
Long says that we will continue to see the near-term impact on crypto prices from Fed rate decisions and economic news, but that expectations are already largely priced in before the news drops.
The economic news regarding inflation has been particularly important for the crypto market, as it is what is driving the Fed to raise rates in the United States. As such, the crypto has recently reacted negatively to inflation reports. For example, crypto prices fell after the US Bureau of Labor Statistics released August inflation data, with bitcoin prices dropping 4% and ethereum prices dropping 7% over the course of the year. of the next 24 hours at that time.
This is the fifth consecutive rate hike by the Fed. If inflation does not subside, it is possible that the Fed will become more aggressive and hike rates by a higher number at its last two meetings of the year. This could lead to even deeper price drops for the crypto, especially if they fall short of market expectations.
However, whether crypto prices will drop this year is up for debate. Some experts say bitcoin is still on course for a massive drop into the $10,000 zone this year, with or without bad inflation and Fed news.
Long doesn’t think we’ll see bitcoin’s price hit 4 digits again, but dips to around $13,000 might not be out of the question.
What should crypto investors do in the face of inflation and Fed rate hikes?
Cryptocurrency is as volatile as investments come in, and the current economic climate has supercharged that. With more rate hikes on the horizon and a recession potentially looming, experts predict further price declines in the crypto market, although this impact may be short-lived if in line with market expectations.
As such, experts suggest that you stay the course with your investments for the long term –– whether crypto or not –– and avoid selling when prices fall. You are likely to see steep price declines in the coming months, especially if inflation does not improve after the Fed’s fifth rate hike.
“We just have to ride short-term volatility,” Long said, “and if you believe in the long term, which I do, you can be bullish in the long term.”
Investment experts recommend that you dedicate no more than 5% of your portfolio to crypto. Additionally, experts warn that you should only invest what you are willing to lose, as crypto prices have been known to turn wildly and suddenly.