Bitcoin Price Plummets Below $27,000 as Fed Raises Interest Rate

On Wednesday, the US Federal Open Market Committee (FOMC) announced its widely expected decision to raise the interest rate by a quarter point, causing Bitcoin to plummet below $27,000. Fed Chair Jerome Powell, following the announcement, stated that the central bank is “strongly committed to returning inflation to our 2% objective.”

The FOMC also acknowledged that recent developments could lead to tighter credit conditions for households and businesses and could impact economic activity, hiring, and inflation. This statement comes after a near banking meltdown this month. As a result, the largest cryptocurrency saw a drop of 4.1% in the past 24 hours, trading at approximately $27,030. The BTC/USD trading pair reached a low of $26,815 on the Coinbase exchange at one point.

BTC Reached Its Highest Level Since June 10

Earlier on Wednesday, BTC had reached its highest level since June 10, trading as high as $28,815. Some investors were hopeful for a potential cessation of the Fed’s hawkish interest rate increases, but the Fed dashed those hopes. Despite this, many analysts remain optimistic about Bitcoin’s future price, given the recent banking sector’s calamities. James Lavish, managing partner at Bitcoin Opportunity Fund, noted in an email to CoinDesk that “Bitcoin, straddling between being the leading risk-on asset and a financial lifeboat in the event of an all-out banking crisis, has benefitted from the recent turmoil and now the prospect that the Fed’s tightening could be over.”

Samir Kerbage, chief investment officer at crypto asset manager Hashdex, also noted in an email to CoinDesk that “while this rate hike is a negative for risk assets in general, it is positive for bitcoin and gold as this puts more stress on the banking sector.” Vineeth Bhuvanagiri, managing director of EMURGO Fintech, the founding entity of the Cardano blockchain, added in an email to CoinDesk that “banks are really struggling” and that “investors are realizing that deposits in banks can feature major counterparty risk.”

Other Cryptocurrencies Affected

The second-largest cryptocurrency by market value, Ether (ETH), was recently hovering around the $1,740 level, down 3.1% from Tuesday. The native token of crypto payment platform Ripple, XRP, was recently changing hands at 43 cents, up 4%, although XRP climbed 20% earlier in the day after reports a day before that Ripple was well-placed to win a landmark case with the US Securities and Exchange.

Crypto Market Performance and Traditional Markets

The CoinDesk Market Index, which measures overall crypto market performance, was recently up 1.8%. In contrast, traditional markets fell into the red, albeit not by much following the Fed announcement, with the S&P 500, Dow Jones Industrial Average (DJIA), and tech-heavy Nasdaq all closing down 1.6%.

Interest Rate Expectations

The 2-year Treasury rate, a gauge that usually reflects near-term interest rate expectations, fell to 3.93%. The US central bank’s decision comes after the February Consumer Price Index showed month-over-month inflation dropping to 6% from the previous month’s 6.4% reading, and the core annual rate, which strips away volatile energy and food costs, ticked down slightly. The declining CPI suggested that Fed measures were at least slowly taming inflation and offered support for monetary policy observers who have insisted in recent months that the Fed had overstepped.

Conclusion

In conclusion, the decision by the US Federal Open Market Committee (FOMC) to raise interest rates by a quarter point on Wednesday resulted in Bitcoin’s price plummeting below $27,000. This decision was made despite acknowledging that recent events could lead to tighter credit conditions for households and businesses, potentially impacting economic activity, hiring, and inflation. Despite the drop in price, some analysts remain optimistic about Bitcoin’s future given recent banking sector turmoil and the potential for it to act as a financial lifeboat in times of crisis. Other cryptocurrencies, such as Ether and XRP, were also affected, although the overall crypto market index was up 1.8%. Traditional markets fell slightly following the FOMC announcement, with the S&P 500, Dow Jones Industrial Average, and Nasdaq all closing down 1.6%. The Fed’s decision was made in response to declining month-over-month inflation and offers support for those who believe the central bank had overstepped in recent months.

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