key takeaways
- Federal Reserve hikes 25 bps, bitcoin drops over 6%
- The bounceback in prices, however, comes in line after market bets on a rate cut
- Bitcoin originally fell to $26,700 and is now back at $27,700
- Tighter monetary policy is getting closer, which is exactly what bitcoin investors want to hear
- The flipside is that bitcoin’s reputation may have been tarnished by the chaos in the industry over the past year.
- Whether institutional money and Wall Street capital will trust crypto again remains to be seen
As has been happening for the last one year, Bitcoin Interest rates continue to fluctuate wildly based on expectations.
The orange coin declined on Wednesday after the latest FOMC meeting, as interest rates were hiked by 25 bps despite some analysts calling for a pause following the banking turmoil in recent weeks.
Why did bitcoin fall?
Such has been the chaos in the banking markets, markets ahead of the meeting had priced in a real possibility that there would be no more rate hikes.
Silicon Valley Bank (SVB) sparked the crisis, which spread to Europe before last week’s spectacular demise of Credit Suisse, a Swiss institution founded in 1856.
With deposits fleeing the banks and markets reverberating, things were falling apart – as they do when rates are raised sharply. And this past cycle has been the most intense form of tightening in recent memory.
Bitcoin fell from $28,500 to $26,700 as the Fed announced a 25 bps hike, a decline of 6.3%.
However, bitcoin has bounced back somewhat, trading at $27,600. It came as markets began to digest Fed Chair Jerome Powell’s discourse about the future path of interest rates.
While the hike happened yesterday, it certainly feels like tighter monetary policy is paying off. It is worth remembering that before the SVB expired, this increase was actually guaranteed to be 50 bps.
And looking at rates through the end of July, the market is predicting a cut rather than a hike. So while a 25 bps hike may have been aggressive, the language and conclusion emerging from the meeting afterwards was very opposite.
Will bitcoin go up?
The question on everyone’s lips within crypto is what does this mean for the price of bitcoin? As always, this is a difficult question to answer, but the future certainly looks brighter for the coin today than it did a few months ago.
is not only removed from the front FTX scam And the wave of bankruptcies that followed the nasty collapse of a former tier-1 exchange, but with respect to tighter monetary policy, the end appears to be near.
Bitcoin was launched in 2009 and therefore experienced nothing but a raging bull market in the wider economy. The S&P 500 rose sevenfold from the GFC low to its peak — and bitcoin, along with tech stocks, rode a wave of low interest rates, warm money printers, and a perfect environment.
However, this was completely reversed last year due to rising inflation. With interest rates rising aggressively, there was no way for bitcoin to maintain its previous level of buoyancy. Down it came, and down it came hard.
Finally, it appears that the tight monetary policy that dragged it through the gutter is nearing the end. And while it doesn’t guarantee anything, it certainly removes the shackles so that there is at least a possibility that it will rise.
Is Bitcoin Tarnished?
The other side of the argument is that the scale of the losses over the past year have been so great that bitcoin’s long-term trajectory has faltered, and it will not be able to stay on the same track.
Crypto winters have come and gone in the past, but this recent one happened, as we said, for the first time with a debacle in the broader economy. This came even when bitcoin was a mainstream financial asset – something that was not true in previous cycles.
Collapses like FTX, LUNA and Celsius not only drove capital out of the space, but Ashamed Crypto at large is equally unfair to the good players in the industry. Will institutional funds and trad-fi money be happy to trust crypto again?
It’s an interesting debate, and only time will tell.