The Federal Reserve’s decision to hike interest rates by 75 basis points for the fourth straight day to combat inflation will have no impact on the cryptocurrency market, according to experts who pointed to key market movements Bitcoin BTC/USD and ether ETH/USD will remain range bound unless there is institutional demand and regulation clarity.
Although the Fed’s tightening monetary policy has led investors to gravitate towards safe-haven assets such as the US dollar, which has soared in value, the central bank was expected to slow the pace of its tightening soon.
Notwithstanding the positive news, broader indexes suffered a major sell-off, with the Dow Jones, Nasdaq and S&P 500 down more than 1.5%, 3.7% and 2.6%, respectively.
The cryptocurrency market mirrored the broader financial markets, with Bitcoin down 1%, Ethereum down around 3.5%, binance BNB/USD and ripple XRP/USD fell 1.3% and 2% respectively.
Shark Tank investor Kevin O’Leary told Benzinga that the crypto market has already priced in the rate hike and will remain locked in the range unless there is clarity on regulations.
“The Fed rate hike means nothing for crypto valuations. It was already on the market. Cryptocurrencies, including bitcoin, will remain banded until we have clarity on regulation. The Stablecoin Transparency Act or one of the Digital Commodity Bills could unlock value, but until then, crypto will be stuck in an impasse due to a lack of institutional demand,” he said.
O’Leary will be speaking at the Benzingas Future of Crypto Conference on December 7th in New York City.
Robert JohnsonEconomic Index Associates CEO and chairman said the likelihood of rate hikes at the next three Fed meetings will certainly dampen enthusiasm for the “highly speculative assets.”
“Higher interest rates are certainly a headwind for risky assets, and crypto represents perhaps the highest risk of all risky assets. Crypto speculators have been buoyed by unprecedented quantitative easing conducted amid the coronavirus pandemic,” Johnson added.
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Guneet Kaur, a digital currency research scholar at the University of Stirling, said that higher Fed rates will be a hindrance for crypto assets going forward, considering the previous hikes have caused the prices of bitcoin and Ethereum have gone down.
“Also, risky asset classes like stocks and crypto have been highly correlated since early 2022 and a decline in one asset class is likely to be followed by the other or vice versa. However, adoption of the cryptocurrency by institutional and active retail traders will erase any near-term declines caused by rate hikes. As such, investors should find ways to use market volatility to their advantage rather than trying to time the market and exhibit herd behavior,” Kaur added.
Julius de KempenaerCrypto expert and senior technical analyst at Stockcharts.com, said that Bitcoin and other cryptocurrencies in general appear to be less vulnerable to macro events like this rate hike.
“I don’t see this change going forward, which could help crypto/BTC decorrelate from traditional markets (stocks/bonds), especially when those markets go through periods of weakness,” he said.
Bitcoin had a relatively large momentum as the first move after the announcement, but the market calmed down shortly after without showing any significant change in its current market structure.
On the hourly chart, bitcoin fell back after the initial rally but managed to stay above the support level near $20,000 but more importantly $18,000.
“These levels are at the bottom of a trading range that BTC has been trading in since June. And the longer that 18k support area lasts, the more important it becomes. Within this range, BTC can rally towards 21,000 and then 25,000 and a strong positive divergence between the price and the RSI supports such a move,” Kempenaer continued.
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