Cryptocurrencies fell as the US Federal Reserve hiked interest
rates by 75 basis points after its two-day FOMC meeting on September 21. The Fed raised
interest rates by 0.75% at its last meeting in July. Interest rates impact
stocks, cryptocurrency, commodities, and various other investments.
Also Read | Impact of US Federal Reserve rate hike on India
Here’s how the Fed hike will affect the crypto
The Bitcoin price dropped following
the last few Fed meetings. While the decline
following September’s meeting was less severe, there’s a clear pattern of Fed rate
increases corresponding to drops in the crypto market. However, it is not clear how markets will react in the
future, especially in the volatile and unpredictable crypto market, experts
largely expect new volatility this week following Fed’s expected rate increase
Also Read | Why is the US Fed Reserve hiking interest rates?
Aggressive rate hikes are bad for crypto prices and the
volatility is likely to continue in the near term, according to experts. Risky
assets like stock and crypto have been have been moving simultaneously and have
struggled to gain any momentum this year as investors are pulling away in
response to increasing interest rates, soaring inflation, and a potential
recession. If the stock market falls because of the rate hike this week, the
crypto market is likely to follow and vice versa.
The Fed’s rate hike in July was one of the various factors
that shocked the crypto market, which was already in the “crypto winter” phase
with prices slashed across the board. Bitcoin and Ethereum have plunged over
70% since the peak of last year’s bull run.
Neither of the two biggest cryptos has seen significant
movement since the July Fed meeting, though some short rallies for each have at
least given investors hope that they could be back on the upswing.
Also Read | How to survive a market crash
are keeping a close eye on bitcoin, ethereum, and the crypto market at large to
see “possible retest of the June lows,” according to Edward Moya, a senior
market analyst at Oanda.
majority of crypto watchers are still awaiting further weakness,” Moya says.
“As global recession calls grow, the focus will switch to how soon the Fed will
be cutting rates.”
Fed signals strong rate hikes through 2023, expect more pain in the markets,”
said Joshua Fernando, crypto expert and CEO of eCarbon, a blockchain tech
company focused on carbon emissions allowances.
Also Read | Why global economy is not in recession yet
How should the Fed meeting impact your
Any significant developments with the Fed, company
earnings, or the quarterly GDP report shouldn’t affect your long-term crypto
investment strategy. The crypto market is still nowhere close to the highs it touched
last year, with Bitcoin and Ethereum still down more than 50% since November.
Also Read | Why RBI would be pushed to hike interest rates
Amid the ongoing
economic uncertainty, it is best to play it safe by allocating no more than 5%
of your investment portfolio to crypto and investing only when you are
comfortable with losing. Before investing any extra money into volatile,
speculative assets like cryptocurrency, make sure your financial bases are
covered such as your retirement accounts and emergency savings.