- Crypto prices display rapid fluctuations as the U.S. Federal Reserve hikes interest rates by 0.25%.
- Investors remain upbeat about the medium-term outlook of Bitcoin and the wider crypto market.
- Fed Chair Jerome Powell hinted at interest rate hikes stopping in the future.
The Federal Reserve increased interest by 25 basis points (bps), leaving the crypto community upbeat about Bitcoin’s and the broader market’s medium-term outlook. The crypto market witnessed heavy volatility as the Fed mentioned pausing interest rate hikes.
The big crypto slid under $28,000 as market participants pondered over the Fed’s decision, which aligned with expectations.
During his speech, Fed Chair Jerome Powell appeared to take the ongoing banking crisis in the U.S. and its impacts lightly while hinting that Wednesday’s increase in interest rates may be the last. According to Powell, the U.S. central bank believes that the collapse of top-tier banks two weeks ago may lead to more stringent credit conditions for Americans:
“events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses, which would, in turn, affect economic outcomes. It is too soon to determine the extent of these effects, and therefore too soon to tell how monetary policy should respond,” he stated.”
Therefore, the 25 bps interest hike reinforces the Fed’s concerns that inflation remains a challenge and that the financial regulator remains “strongly committed to returning inflation to our 2% objective.” Powell further stated:
“As a result, we no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation. Instead, we now anticipate some additional policy firming may be appropriate.”
Reacting to Powell’s comments, some market analysts described the Fed decision as “slightly dovish” as “forward guidance makes a pause in May more likely,” Holger Zschaepitz wrote on Twitter. The market commentator further added, “Fed now says that “some additional {policy) firming may be appropriate.” This is a downgrade from the prior statement. Dollar drops, Gold, Bitcoin, stocks rise, Yield curve steepens.”
Others described Powell’s speech as “hawkish” in prioritizing inflation above the banking crisis by continuing the interest hike.
The Crypto Market Responds With Volatility
Bitcoin price slid as low as $26,678 on Coinbase immediately after Powell’s speech as investors booked profits on the 20% gains made over the last week. Additionally, Bitcoin-tracked futures suffered over $150 million in losses as volatility increased, with billions in open interest – or the number of unsettled contracts – effectively being wiped out.
Data from Coinglass, a monitoring resource, put the total crypto liquidations for the day at $65.35 million and $183.72 million for shorts and longs, respectively.
Total Liquidations
Since Bitcoin did not tread the path to $30,000 as many analysts had predicted in the run-up to the Fed decision, as much as 75% of the losses came from the longs, as traders positioned for a move higher after the FOMC meeting but were caught off guard.
The second largest cryptocurrency by market capitalization, Ethereum, dropped under $1,600 during the early Asian trading hours on Thursday before gradually recovering to the current price of $1,757. Its futures saw over $50 million in losses, contributing to over $280 million in overall crypto futures liquidations.
Other primary tokens, such as the sixth-placed XRP, fell 8% as bears sold on last week’s rally amid positive sentiment for a favorable result for the San Francisco-based blockchain company in the ongoing Sec v. Ripple case.
Meanwhile, the flagship cryptocurrency has since recovered as optimism remains about the asset’s strength in the medium term.
