The decision reinforced the central bank’s concerns that inflation remained a concern. The FOMC is “strongly committed to returning inflation to our 2% target,” Fed Chair Jerome Powell said after the announcement.
However, in a statement accompanying Wednesday afternoon’s rate hike, the FOMC also acknowledged banks’ near-collapse this month, saying “recent developments are likely to result in tighter credit conditions for households and businesses, and economic activity, hiring and… put pressure on inflation”.
The top cryptocurrency recently traded around $27,030, down 4.1% over the past 24 hours, with the BTC/USD trading pair on the Coinbase exchange crashing as low as $26,815 at one point. Earlier on Wednesday, BTC had changed hands as high as $28,815, hitting its highest level since June 10, as some investors appeared to be hoping for a possible end to the Fed’s years-long diet of restrictive rate hikes. The Fed dashed those hopes.
Still, given the banking sector disasters, some analysts have been optimistic about Bitcoin’s price in the near future. “Bitcoin, vacillating between the leading risk-on asset and a financial lifeboat in the event of a full-blown banking crisis, has benefited from the recent turmoil and now the prospect that Fed tightening may be over,” leads James Lavish Partner at Bitcoin Opportunity Fund , CoinDesk announced in an email.
However, Lavish said he will continue to expect volatility as the recent banking crisis continues. “We are marching towards a recession, or worse, a much larger credit event is occurring,” he said.
Samir Kerbage, chief investment officer at crypto asset manager Hashdex, told CoinDesk via email that “during this rate hike, a negative for risky assets in general, it’s positive for bitcoin and gold as it weighs more heavily on the banking sector.”
Vineeth Bhuvanagiri, the chief executive of EMURGO Fintech, the founding company of the Cardano blockchain, also noted in an email to CoinDesk that “the banks are really struggling,” adding that “the authorities are returning to massive liquidity injections onshore.” need the financial sector on. And bank runs are forcing investors to reconsider what it means to actually own assets – that is, they recognize that deposits with banks can carry significant counterparty risk.
Ether (ETH), the second largest cryptocurrency by market value, recently hovered around $1,740, down 3.1% from the same time Tuesday. Among other major digital currencies, crypto payments platform Ripple’s native XRP token was recently down 11%, a reversal from earlier in the day when XRP jumped 20% after reports on Tuesday that Ripple was well-positioned to gain one landmark case with the US Securities and win exchange.
Traditional markets fell into the red, though not by much after the Fed’s announcement that the S&P 500, the Dow Jones Industrial Average (DJIA) and the tech-heavy Nasdaq all closed down 1.6%.
The 2-year Treasury rate, a measure that usually reflects short-term interest rate expectations, fell to 3.93%.
The Federal Reserve’s decision comes after February’s CPI showed inflation fell to 6%m/m from 6.4% the previous month and the annual core rate, which eliminates volatile energy and food costs, fell slightly . The bearish CPI suggested that the Fed’s actions are at least slowly taming inflation, and provided support for policy observers who have insisted in recent months that the Fed had gone too far.
“I think Powell will be very sensitive about surprising the market,” Ben McMillan, chief investment officer at crypto asset manager IDX Digital Assets, told CoinDesk ahead of the decision.
But McMillan claimed he saw a more optimistic attitude towards risky assets.
“We’ve noticed that people are now starting to think of bitcoin as the same bucket as commodities or hard assets as a store of value,” he said.
In an email to CoinDesk, Brent Xu, chief executive officer and co-founder of Umee, a Web3 bond market platform, wrote that Bitcoin “has shown remarkable strength during this global crisis involving banks.”
“Something like a mini bull run could be at play but I think you have to be careful here,” he wrote. “The Federal Reserve could continue to hike rates higher than expected – that is, beyond this recent 25 basis point hike – as inflation is not yet tamed. Because of that, a pullback could be imminent, meaning it’s just too uncertain now it’s time to make more definitive decisions.”
James Rubin contributed to this report.
UPDATE (22 Mar 2023, 20:28 UTC): Updates with the latest XRP and CoinDesk market index figures.