Crypto braces for $250 billion earthquake in bitcoin and ethereum prices

Update 02/02 below. This article was originally published on January 31

Bitcoin
BTC
ethereum and other major cryptocurrencies surged in the first month of 2023, adding $250 billion to the combined crypto market and topping a surprise Goldman Sachs chart.

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Update 02/02: Bitcoin price surged after the US Federal Reserve continued its well-telegraphed quarter-point interest rate hike, taking the federal funds rate to a range between 4 .5% and 4.75%, its highest level since September 2007. .

“Fed policy is, in fact, fluid and it could tilt to suspend its rate hikes sooner than it expected based on incoming data,” said crypto market analyst Yuya Hasegawa. at Tokyo-based Bitbank in comments via email. “However, while inflation in the states is slowing, it is still high and ‘stays high’ as ​​the statement suggests, and Federal Reserve Chairman Jerome Powell has indicated that the Fed needs a lot more evidence to confidently say that inflation is approaching its 2% target.”

The price of bitcoin briefly rose above $24,000 per bitcoin, a level not seen since last August before falling back as traders bet the slowdown in interest rate hikes will continue through 2023 and may even see the Fed adopt a more accommodating position. However, Fed Chairman Powell warned that it would be “very premature to declare victory” in the fight against inflation.

“Overall, the market has taken the last [Federal Reserve interest rate decision] also dovish, but the bitcoin rally remains precarious,” Hasegawa said. “In fact, the price rose on Wednesday, but failed to close above $24,000 and its momentum appears to be waning. Friday’s jobs report could provide a boost, but with recent declines in initial weekly jobless claims, it may be too optimistic to have high hopes.

The price of bitcoin jumped to around $23,000 per bitcoin from less than $17,000 at the start of the year. Ethereum
ETH
and the other top ten cryptocurrencies saw similar gains—although some smaller pieces have climbed even higher.

Now, the $1 trillion crypto market is gearing up for the Federal Reserve’s latest interest rate decision tomorrow which is expected to see the Fed raise its funds rate to a new target range of 4.5% at 4.75% – its smallest rise since it started raising rates in March last year.

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Markets are “buckling under the pressure of the Federal Reserve’s upcoming rate hike,” Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown, said in emailed comments.

Bitcoin price fell back from the six-month high it hit over the weekend, mirrored by Ethereum and other major cryptocurrencies.

“Policymakers are largely expected to raise rates by 25 basis points, and that’s what the market priced in,” Lund-Yates said. “As the decision draws closer, there are inevitably small tremors that are felt, but these should not be prolonged.”

Growing expectations that the Federal Reserve could deviate from its policy of rapidly rising interest rates fueled a crypto and stock market rally through January after economic data showed scorching inflation was starting to cool . The Fed’s series of interest hikes last year were aimed at lowering inflation by sucking liquidity out of the system.

“The market may have gotten ahead for the Fed’s liking,” Nauman Sheikh, head of cash management at crypto asset manager Wave Financial, said in an emailed note.

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Following tomorrow’s interest rate decision at 2 p.m. ET, Federal Reserve Chairman Jerome Powell will hold a press conference at which he is expected to reiterate his hawkish stance.

“The Fed has already laid out its ‘higher for longer’ roadmap, under which interest rate hikes would move from a rapid to a more measured pace and then remain anchored at the terminal rate for some time” , Sheikh said.

“The market, now focused on the recession, does not believe the Fed and is forecasting rate cuts from September. There is a good chance that at the press conference Powell will be more hawkish and tighten financial conditions. Because of this, we could see a healthy near-term correction in crypto and all risky assets.”