Fed Raises Interest Rates to 22-Year High – Crypto Market Unfazed?

Bitcoin's price remains relatively stable following the Federal Reserve's announcement of a 25 basis point interest rate hike, as anticipated.

Fed Raises Interest Rates to 22-Year High – Crypto Market Unfazed?
Image: Bloomberg

Late on July 27 (Vietnam time), the Federal Reserve of the United States announced an additional 25 basis point (0.25%) interest rate hike, signaling further tightening this year. This brings the federal funds rate to 5.25% - 5.5%, its highest level since 2001.

This move marks the Fed's 11th rate hike in 17 months, resuming after a pause since February, aimed at cooling inflation, which remains double the 2% target.

"The labor market remains strong, and economic growth is moderate," a more optimistic Fed statement compared to last month's "cautious" assessment. In June, the Fed paused rate hikes to observe the impact of monetary policy tightening on the US economy and inflation.

"As we assess the efficacy of our policies to bring inflation back to target, the Committee will factor in the pace of monetary tightening, the lagged effects of monetary policy on economic activity and inflation, alongside economic and financial developments," the Fed stated.

While inflation in the US has eased from its peak, the battle is far from over. At the press conference, Chairman Jerome Powell signaled a cautious stance, affirming that inflation continues to accelerate and forecasting another rate hike later this year. Powell hinted, "We'll only ease when comfortable, and that won't happen this year."

Following this news, the overall cryptocurrency market has shown minimal volatility, partly within analysts' and global investors' expectations and partly due to limited interest rate headroom. However, upcoming CPI announcements and employment data releases in September's meeting will provide further clarity.

Bitcoin (BTC) briefly rose 1.3% to $29,690 but retreated to $29,362. The largest cryptocurrency by market capitalization has been trading sideways between $29,000 and $31,500 for over a month.

15-minute chart of BTC/USDT on Binance at 09:05 AM on July 27, 2023

Ethereum (ETH) also saw an uptick to $1,888 and is currently trading around $1,873, recording a 1% increase over the past 24 hours.

15-minute chart of ETH/USDT on Binance at 09:05 AM on July 27, 2023

While green dominates the statistics, major and minor altcoins have shown volatility ranging from 1% to 5%.

According to Coinglass data, $39 million worth of derivative liquidations occurred in the past 12 hours, primarily from the short side. The most liquidated assets were BTC and ETH across Binance, OKX, and Bybit exchanges.

Statistics on derivative liquidations in the past 12 hours. Source: Coinglass

US stocks reacted relatively subdued to the announcement, with Nasdaq declining 0.3%, S&P 500 increasing 0.1%, and Dow Jones rising 0.4%.