Stocks and cryptocurrency prices bounced back on Wednesday after the Federal Reserve decided to implement the biggest rate hike in over 20 years. Bitcoin price crossed the important resistance at $40,000 for the first time in a week while Ethereum is approaching its resistance at $3,000.
Fed interest rate decision
The performance of cryptocurrency prices mirrored that of stocks. The Dow Jones rose by over 900 points while the tech-heavy Nasdaq 100 index rose by over 400 points. The same trend happened in Europe, where the DAX index rose by 1.3% and the CAC 40 and Stoxx rose by more than 1%.
Stocks and crypto prices rose since the Fed rate hike was already priced in by market participants. The minutes of the March meeting showed that the officials were committed to keeping hiking interest rates in the remaining meetings.
In addition, Fed officials like Mary Daly and Jerome Powell have insisted that the bank will keep hiking interest rates. Daly is a notable one since she is one of the most dovish Fed officials.
These assets rose because of a market phenomenon known as buying the rumor and selling the news. In this case, investors sold the rumors and then bought the fact.
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Will the Fed sink Bitcoin prices?
Therefore, the question is whether a more aggressive Federal Reserve will sink cryptocurrency prices. Besides, its easy-money policies helped to fuel the biggest crypto euphoria ever.
In theory, these Fed decisions should be bearish for Bitcoin and other crypto prices. However, in practice, there is a possibility that the coins will actually rally. For one, there are doubts about whether the Fed will implement the rate hikes that it has promised during a period of stagflation.
Recent data shows that the American economy is slowing. For example, the GDP barely grew in the first quarter. Some flash economic numbers have showed that the economy is in trouble.
For example, mortgage rates have already risen to over 5% while pending home sales have dropped in the past five straight months. Retail sales and consumer confidence have also declined recently.
There are also concerns about whether the Fed can actually slow inflation since it has been caused by external factors like the war in Ukraine and logistical challenges.
Most importantly, the credibility of the Fed is wanting. This is the same bank that spent the whole of 2021 talking about transitory inflation.
Therefore, there is a likelihood that Bitcoin and other altcoin prices will rebound in the coming months as investors price in a less hawkish Fed.
