Bitcoin prices rose by 6% on Wednesday, after the Federal Reserve raised rates half a point. This was the largest hike in about 20-years.
Bitcoin started climbing before the Federal Open Market Committee’s meeting. Many people expected the half-point increase. The Fed Chair Jerome Powell, who ruled out a 75-basis point increase, accelerated the surge.
Powell stated that a 75-basis point increase is not something the committee is considering. “I believe that inflation will begin to flatten out, I think,” Powell said.
Bitcoin reached $40,002.75 at one point during Powell’s afternoon remarks. The market for crypto assets rose along with it.
Nick Mancini, director research at Crypto sentiment analytics platform Trade The Chain, stated that any FOMC guidance without a 0.75 percent increase in interest rates would be bullish for crypto and equities. “We believe the market has priced for continued increases of 0.25%-0.50% going forward for 2022. This provides market certainty which in turn breeds bullish price action.
Joe Orsini (director of research at Eaglebrook Advisors) noted that the market was expecting the most aggressive tightening in the same time period, despite inflation at its 40-year peak.
He said that these expectations were set up for a rally “not all that bad” should the Fed become less hawkish than they feared. “The rally we are seeing today began when Powell rejected a 75-basis point hike. This was the first sign of this.
Bitcoin has struggled since November to reach its record high of $68,000, as it was hit by tighter Fed policy, rising inflation and war in Ukraine. The cryptocurrency’s notorious volatility has fallen in the short term, well below the shares of tech darlings like Netflix, PayPal, and Meta Platforms. It has traded in tight ranges since 2022, trading between $38,000 and $42,000, and has traded between about $38,000 and $42,000 since then.
Orsini said that if there are signs of inflation peaking, the Fed can show patience. A less aggressive tightening policy would have been bullish for bitcoin, Ethereum, and digital assets. They continue to bounce harder then traditional equities.
The bitcoin bounce coincided with an increase in the broad equities market. The S&P 500 ended 2.9% higher while the Nasdaq gained over 3%. The Dow Jones Industrial Average gained over 932 points.
The price action of Bitcoin continues to be the most significant in the crypto market. However, it is also highly correlated with stock markets movements.
Josh Olszewicz is the head of research for Valkyrie Funds’ digital asset investment manager Valkyrie Funds. He stated that traditional and digital market correlations are still significant. ‘DXY’ and the 10-year yield were sharply reversed intraday while the S&P 500 saw a slight bullish bump with bitcoin rising nearly 3.5% from its intraday lows.