Crypto Prices and the Effect of Fed Rate Hikes: A Look at the Potential Impact on Bitcoin and Other Major Tokens
With the Federal Reserve expected to raise its benchmark lending rate by 25 basis points, investors in the cryptocurrency market are bracing for a potential sell-off. While the recent surge in Bitcoin and other major tokens has been attributed to the tumultuous banking sector, Bernstein analyst Gautam Chhugani predicts that the rate hike will prompt traders to take some profits.
The Current State of Bitcoin
As of shortly before 9:30 a.m. ET, Bitcoin was hovering around breakeven at $28.27K. However, the cryptocurrency has surged nearly 70% since the start of 2023, prompting some to compare its recent price action to “the pre-2020 days of Crypto, where it traded as a ‘safe haven’ and ‘risk-off’ asset.”
The Impact of a 25 bps Rate Hike
According to Chhugani, a rate hike of 25 bps will result in a sell-off in crypto prices, but not by much. He argues that such a move would further harm the banking system, which is bullish for crypto. This reinforces the case for decentralized financial systems and a decentralized “store of value” money that cannot be devalued by a central bank, such as both BTC and ETH.
Other Scenarios
Should the Fed pause its rate increases, investors may conclude that something is breaking in connection with financial stability. This could be an “immediate positive impulse” for crypto, but markets would wait to see what more is to come out of the banking situation.
Alternatively, if the Fed cuts rates by 25 or 50 bps, it would acknowledge that it went “too fast and too far” in its rate hikes to bring inflation down. This could cause a risk-on impulse, resulting in a rally in crypto markets.
Conclusion
While a rate hike is expected to result in a sell-off in crypto prices, the impact is likely to be minimal. The current state of the banking system is bullish for crypto, reinforcing the need for decentralized financial systems and a decentralized “store of value” money. Ultimately, the market will be closely watching the Fed’s decisions and their impact on financial stability.
FAQs
- How much has Bitcoin surged since the start of 2023?
- Bitcoin has surged nearly 70% since the start of 2023.
- Why has the recent surge in Bitcoin and other major tokens been attributed to the banking sector?
- The recent tumult in the banking sector has been seen as a boon for crypto prices.
- Why is a more fragile banking system bullish for crypto?
- A more fragile banking system reinforces the case for decentralized financial systems and a decentralized “store of value” money.
- What could happen if the Fed pauses its rate increases?
- Investors may conclude that something is breaking in connection with financial stability, resulting in an “immediate positive impulse” for crypto.
- What could happen if the Fed cuts rates by 25 or 50 bps?
- A rate cut could cause a risk-on impulse and result in a rally in crypto markets.
