• Wednesday’s Federal Open Markets Committee meeting saw the Federal Reserve agree to raise the benchmark interest rate by 25%.
• Bitcoin did not react to the news with its usual fervor, continuing to trade slightly above $23,000.
• The 25-point raise was in line with market expectations, and milder than December’s 50-point hike.
The Federal Open Markets Committee met on Wednesday to discuss the future of the US economy and to agree upon a benchmark interest rate. After much deliberation, the Federal Reserve decided to raise the benchmark interest rate by 25%. This brings the Fed’s benchmark rate to its highest level since late 2007, between 450 and 475 basis points. The 25-point raise was in line with market expectations, and milder than December’s 50-point hike.
Analysts had been debating the possible effects of the rate hike on the crypto market, with some predicting a bearish reaction from Bitcoin. However, Bitcoin saw little price action after Wednesday’s announcement. Prior to the announcement, Bitcoin traded for roughly $23,000 and saw little action in its aftermath. It briefly rose to $21,150, only to return to its pre-announcement levels.
The muted reaction of the crypto market to the rate hike was in stark contrast to previous rate hikes. In June of 2018, for example, a 25-point rate hike saw Bitcoin’s price fall from $6,863 to $5,873 in the days following the announcement. Similarly, a December rate hike saw Bitcoin’s price fall from $7,873 to $6,873 in the weeks following the announcement.
The muted reaction to the January rate hike could be attributed to the market’s growing acceptance of Bitcoin as a viable investment asset. In recent months, institutional investors have poured billions of dollars into Bitcoin, driving up its price and providing it with a greater degree of stability. This has made the crypto asset less susceptible to external shocks, such as rate hikes.
It is also likely that investors were more prepared for the rate hike this time around. The Federal Reserve had signaled its intention to raise rates in the weeks leading up to the announcement, allowing investors time to formulate a response. This could also explain why the reaction to the rate hike was much milder than in previous years.
In spite of the muted reaction, some analysts are warning investors to remain cautious in the weeks ahead. The rate hike could still have a negative impact on the crypto market in the long run, as higher borrowing costs could lead to a decrease in demand for Bitcoin. This could potentially lead to a decline in its price.
Only time will tell how Bitcoin and other cryptos will react to Wednesday’s rate hike. For now, investors will have to wait and see how the markets respond.