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

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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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 1 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.”