Bitcoin, Ethereum Drop Sharply After Fed Signals More Interest Rate Hikes to Come
Bitcoin nosedived following the central bank’s decision to raise rates by 50 basis points.
The price of Bitcoin nosedived today—along with U.S. stocks—on news that the Federal Reserve approved a smaller interest-rate hike than previous ones this year, but signaled plans to keep raising rates next year to combat high inflation.
The Fed has this year upped interest rates 0.75 percentage points four times in order to get inflation—currently at a 40-year high in the U.S.—under control. This time the U.S. central bank upped rates by 0.50 percentage points.
This announcement showed investors that despite the smaller rate hike, the Fed may still keep up its aggressive monetary policy in 2023.
At the time of writing, CoinGecko data showed Bitcoin, the biggest cryptocurrency by market cap, was trading hands for $17,940—down 2.3% in the hour following the announcement.
Bitcoin earlier today broke above $18,000 for the first time since failed crypto exchange FTX went bust on November 8. It has now erased those gains but is still up over 3% in the past week.
Most of the crypto market was immediately in the red following the announcement—just like U.S. stocks. Ethereum was trading for $1,301, down 2.5%; Dogecoin dropped by 3.5%.
Digital assets closely follow U.S. stocks because they are considered “risk assets”—assets like tech stocks or Bitcoin are more volatile in price than less risky assets like U.S. treasuries or dollars.
The central bank said in a statement: “The committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”
Following the announcement, the Dow Jones Industrial Average fell 109 points, or 0.3% after being 287 points higher earlier today; the S&P 500 dipped 0.5%.