Bitcoin (BTC) price fell slightly below $28,500 after the US Federal Reserve did what was widely expected and hiked interest rates by 25 basis points (bps). The hike sends the federal funds rate within a target range of between 5% and 5.25%.
The largest cryptocurrency by market cap recently traded at around $28,350, down about a percentage point over the past 24 hours, according to CoinDesk data.
The Fed’s decision on Wednesday marked the 10th rate hike in 14 months. In its statement on the rate hike, the Fed’s Federal Open Market Committee (FOMC) said that “tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation” and that it will keep a close eye on inflationary risks.
In a press conference following the rate announcement, Fed Chair Jerome Powell said that although prices “have moderated somewhat since the middle of last year, inflationary pressures remain elevated and the process of bringing inflation back to 2% is having an impact has long way to go.”
Powell also said a decision on the hike pause “was not made today,” although he noted that the current statement does not signal additional rate hikes like previous statements. “Assessment of the appropriateness of additional policy tightening continues from meeting to meeting,” he said, noting uncertainties in credit conditions.
“It’s possible that we’re going to see what will hopefully be a mild recession,” Powell added.
The CME FedWatch tool showed that currently over 93% of traders see the central bank halting its rate hike diet at the June monetary policy meeting.
Ether (ETH), the second largest cryptocurrency by market cap, recently rose about 0.3% to around $1,878. The CoinDesk Market Index (CMI), which measures the overall performance of the crypto market, is down 1% on the day.
In an email to CoinDesk, Michael Safai, managing partner at crypto trading firm Dexterity Capital, said the recent Fed decision would likely result in “mixed results” for crypto traders. “As talk softened about future rate hikes, the Fed left the door open by saying future decisions would depend on macro data. Inflation data is improving, but it’s still not rosy enough to excite crypto traders,” Safai said in an emailed comment.
“Crypto is quiet at the moment, which means there isn’t enough exit velocity for the top 10 coins to break out of the macro correlation,” he added. ”Bitcoin and [ether] tend to be rangebound until we see an indication of where inflation is headed. Markets could face a somewhat slow summer if economic recovery follows a moderate pace.”
Greg Magadini, director of derivatives at crypto analytics firm Amberdata, pointed out in an email ahead of the Fed’s decision that there would be two CPI inflation measurements before the Fed’s next meeting in mid-June, meaning the possibility of an inflation hike remains on the table.
Magadini said BTC has been driven by macro events this year, with Wednesday’s rate hike already priced in.
Stock markets closed lower on Wednesday, with the S&P 500 down 0.7%. The Dow Jones Industrial Average (DJIA) and the tech-heavy Nasdaq Composite slipped 0.8% and 0.4%, respectively.
In bond markets, the 2-year Treasury yield note fell 12 basis points to 3.86% recently, while the 10-year Treasury yield note fell 7 basis points to 3.35%.
Crypto investors are struggling to understand the potential impact of recent bank failures and disputes with crypto regulators on the markets.
“Bitcoin still remains anchored and is unlikely to scale above $30,000 until the US receives some regulatory clarity,” Edward Moya, senior market analyst at forex market maker Oanda, wrote in a note on Wednesday.
Meanwhile, crypto data firm Kaiko’s chart showed that the 2% market depth of BTC and ETH, a metric used to assess liquidity conditions, has approached near a one-year low.
Dessislava Ianeva, a research analyst at Kaiko, noted to CoinDesk that despite Bitcoin’s price gains this year, trading volumes on key exchanges are down more than 70% over the same period last year. She suggested that the low volume was partly due to “major macroeconomic and regulatory uncertainties.”
“Market makers are still cautious about adding liquidity and have likely revised their risk management strategies,” Ianeva said. She added that the liquidity gap created after the collapse of exchange FTX and its trading arm Alameda Research in November “is proving persistent. ”
“Hopefully, liquidity will return in time and critical mass will build up in newer areas of the digital asset space. But until that happens — or a major headline reinforces or challenges crypto’s appeal — Bitcoin will continue to haunt the broader markets,” said Dexterity Capital’s Safai.
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