The Impact of Fed’s Interest Rate Hike on Cryptocurrencies

• The Fed’s 0.25% interest rate hike noted a modest growth in the cryptocurrencies.
• Meanwhile, in January the Federal bank regulatory highlights key risks for banking organizations associated with crypto-assets and the crypto-asset sector.

According to a Bloomberg report, the Altcoins lead post-fed crypto rally as the risk appetite increases. The smaller coins led the gains among cryptocurrencies as the Fed finally eased its aggressive interest rate hike. The Fed brought the interest rates to 4.75%, and the Chair of the Fed Jerome Powell suggested that there could be just a couple more increases.

The impact of Fed interest rate hike

Day after the Fed announcement, the gauge of the top 100 coins was up 37% so far in 2023. Matt Maley, Chief Market Strategist at Miller Tabak + Co., said “Investors are moving out the risk spectrum towards more speculative plays right now. Just like they are in stocks.”

Moreover, the crypto-linked stocks also benefited from the broad-based enthusiasm. Coinbase Global Inc. is up 19%, while Silvergate Capital Corp., is higher by 36%. Additionally, “an index of crypto-mining equities is also trading higher by 10.7% Thursday, after registering an unprecedented month when it saw 77% of gains,” as per the Bloomberg report.

The reaction of the crypto market after the Fed’s first interest rate hike decision in 2023 seems quite well. The global cryptocurrencies touched the market cap of around $1.09 trillion with an increase of 0.55% over the last day. There is no doubt that Bitcoin surged at the $24K level amid the news of Fed interest rate hike. Not only Bitcoin, most of the other cryptocurrencies are also performing bullish amid the news.

However, as per the expectations from the Fed’s first FOMC meeting, Bitcoin did not react at first. But it performed in between the price range of $22k to $23k, as shown in the below chart.

Fed’s Joint Statement on crypto-asset risks

Earlier in January, Agencies issued a joint statement on crypto-asset risks to banking organizations. Notably, the statement describes several key risks that are associated with crypto-assets and the crypto-asset sector. Given these risks, the agencies continue to take a careful and cautious approach related to current and proposed crypto-asset-related activities and exposures at banking organizations.

According to the Joint Press Release by Fed, “The agencies continue to evaluate whether or how current and proposed crypto-asset-related activities by banking organizations can be conducted in a manner that is safe and sound, legally permissible, and in compliance with applicable laws and regulations, including those designed to protect consumers.”

The agencies further will continue to closely monitor crypto-asset-related exposures of banking organizations, and, as warranted, will issue additional statements related to engagement by banking organizations in crypto-asset related activities.

Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.

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