The Federal Reserve announced on Wednesday that it will raise interest rates by 0.25% and reduce its bond-buying program by $30 billion per month, signaling a faster pace of monetary tightening amid rising inflation and strong economic growth.
These decisions could have implications for the crypto markets, as some analysts and investors see cryptocurrencies as a hedge against inflation and currency devaluation. However, others argue that higher interest rates could make crypto less attractive as an alternative asset class, or that the Fed’s actions could trigger more volatility and uncertainty in the global financial system.
According to CoinDesk, some crypto experts believe that the Fed’s move could boost the demand for bitcoin and other digital assets, as they offer a scarce and decentralized store of value that is not controlled by any central authority. They also point out that crypto has historically performed well during periods of rising interest rates, as it reflects the growing adoption and innovation in the sector.
On the other hand, some crypto skeptics think that the Fed’s decision could dampen the enthusiasm for crypto, as it signals a more hawkish stance on monetary policy and a stronger dollar. They also warn that higher interest rates could increase the cost of borrowing and leverage for crypto traders and investors, or that the Fed’s tapering could reduce the liquidity and stimulus that have supported the crypto rally.
As Forbes reported, the crypto market has been experiencing a sharp correction in recent weeks, as regulatory pressures, technical glitches, environmental concerns, and profit-taking have weighed on sentiment. The market cap of all cryptocurrencies fell from over $2.5 trillion in early November to below $1 trillion on Monday, before recovering slightly to around $1.4 trillion on Wednesday.
The Fed’s announcement did not seem to have a major impact on the crypto prices on Wednesday, as most coins traded in a narrow range or slightly rebounded from their recent lows. Bitcoin, the largest and most influential cryptocurrency, was up 1.6% to $37,800 at the time of writing, while ether, the second-largest, was up 2.4% to $2,400.
However, some analysts expect more volatility and uncertainty in the coming days and weeks, as the market digests the Fed’s actions and outlook. They also advise investors to be cautious and diversified, as crypto remains a highly speculative and risky asset class that is subject to various external and internal factors.
