Bitcoin Price Crash After Fed Raises Rates
This week we watched as the Bitcoin price crashed to its lowest level in almost a year, infamously going along with the stock market plunge.
This, however, isn't unexpected and can be attributed to the Federal Reserve's tightening its grip on the overall economy. Last week, Fed Chairman Jerome Powell stated the central bank accepted a half-percentage-point interest rate rise in an attempt to restrain inflation that reached its record heights in the last 40 years.
Constant rising inflation, paired with a heavy growth of the interest rates, creates one of the most significant short-term dangers for the American economy. The Fed also cautioned that the Russia-Ukraine conflict could represent a dangerous threat to the country's financial stability.
The central bank said that more 'adverse surprises' in interest rates and inflation could affect the financial system negatively, especially if they are accompanied by economic activity declining.
The rest of the algorithm is pretty clear - as the Fed raises rates, the U.S. Dollar Index became the strongest in the last 20 years.
The Crypto community is not happy with the Fed's supremacy over the digital currency markets. Bitcoin's price crashed by 17% in April - the worst monthly performance this year. The biggest cryptocurrency by its market cap completed six consecutive red weekly candles, a phenomenon that hasn't happened since 2014.
However, solace of a kind is found in the fact that crypto prices are following equities, especially tech stocks. This means that the fall isn't the direct result of investors not believing in crypto. Still, it shows that Bitcoin is still not considered a hedge against inflation.
Fears of Crypto Winter
Analysts argue about what could happen next. Some are afraid of repeating the crypto winter 2018, while others claim the crypto sector is in a better condition now than it was four years ago.
Still, the geopolitical situation is far from ideal. Last year was marked by a COVID pandemic that boosted virtual finance and resulted in altcoins jumping more than 5,000%. This year, we are witnessing an exodus from the crypto market.
At the time of writing, Bitcoin was trading at more than 40% lower than its all-time high. It won't be easy to HODL and many will be tempted to sell.
However, to sell a loss, you're limiting yourself from profiting.
The Fed may be a big deal, but it isn't the only regulator of the digital currency market. The whole sector is still in diapers and we're still waiting for it to be regulated.
Crypto Not Losing Its Grip
Be that as it may, we doubt the crypto market will lose its grip. However, some investors may reallocate from Bitcoin or gold to the dollar in the short term. Still, it is believed that Bitcoin will still be guided mainly by basic factors, such as an increase in users and network usage.
On the other hand, Bitcoin bulls will most probably take advantage of the Fed's move and, almost regardless of price, buy the dip.
Author: Teuta Franjkovic
A sincere writer with a strong will to share knowledge on all things blockchain, crypto, metaverse and DeFi. Starting out as a writer with Cosmopolitan, Teuta has risen through the ranks of business journalism, editing newspapers and websites within the fintech industry for over 15 years. She holds a double MA in Public Politics and Entrepreneurship.