Why the crypto market is reacting positively to the Fed’s decision

It is the sharpest interest rate hike in 22 years that the US Federal Reserve announced yesterday. Overall raises the fed the key interest rate by 0.5 percentage points, to a future range of 0.75 to 1 percent. One wants to react to the high inflation, said central bank head Jerome Powell. Most recently, the inflation rate in the USA was 8.2 percent.

Global supply bottlenecks and the corona pandemic led to price increases at the end of last year, which were further intensified by the war in Ukraine. The Fed responded, announcing a reversal in interest rate policy earlier in the year, followed by an initial hike of 0.25 percentage point in March.

Crypto market reacts positively to interest rate hike

In fact, rate hikes don’t bode well for risky assets like cryptocurrencies. However, the crypto market has so far reacted positively to the Fed’s decision. According to coingecko market capitalization has increased by 2.5 percent in the past 24 hours. Bitcoin temporarily recorded a 4.7 percent increase. Other markets like that too Nasdaq100 or the S&P 500 showed a positive reaction to the rate hike.

The comparison between crypto, especially Bitcoin, and tech stocks is often drawn within the community. Phillip Sandner, a professor at the Frankfurt School of Finance and Managementpartly not understand in conversation with BTC-ECHO.

Some suspect a correlation, but the market is now showing that it only exists in the short-term, not the medium-term.

In addition, analysts had already expected such a step in advance. So Jerome Powell already gave in April, on the margins of an International Monetary Fund (IMF) panel, pointing to a 0.5 percentage point hike. The next hike is expected in the US at the end of June.

ECB is holding back

While the USA has now raised interest rates for the second time, the European Central Bank remains cautious. Following the Fed’s announcement in January, the ECB left interest rates unchanged in February. Sandner is concerned about the ECB’s hesitation.

In Europe, politicians and central banks, despite their laxity, have the feeling that the threateningly high inflation figures have not yet got through.

The ECB does not intend to raise interest rates until the third quarter – despite record inflation of 7.5 percent in the euro area. However, it remains to be seen whether the currency watchdog will allow itself to be carried away to a quicker decision in view of the high rate of inflation.