Crypto industry players who are bullish on bitcoin point to various reasons why they think the digital currency will rise, including rising inflation and growing institutional investor participation. But an uncertain regulatory environment continues to turn out to be a headwind for bitcoin.
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The price of bitcoin rose about 6% on Wednesday after the Federal Reserve hiked rates by half a point, the largest increase in 20 years, as expected.
Bitcoin it began to rise before the end of the Federal Open Market Committee meeting. The half-point increase was widely expected by many. Its rise accelerated after Fed Chairman Jerome Powell ruled out the possibility of a 75 basis point hike.
“A 75 basis point increase is not something the committee is actively considering,” Powell said. “I think the expectations are that we’re going to start to see inflation, you know, flatten out.”
At one point, between Powell’s afternoon observations, bitcoin rose as high as $ 40,002.75. The crypto assets on the market have increased with it.
“Any guidance from the FOMC that doesn’t include a 0.75% interest rate hike would be bullish for both cryptocurrencies and stocks,” said Nick Mancini, director of research at cryptocurrency sentiment analysis platform Trade The. Chain. “We believe the market has priced in continued increases from 0.25% to 0.50% forward for 2022. This gives certainty to the market, which, in turn, generates bullish price action.”
Joe Orsini, research director at Eaglebrook Advisors, noted that with inflation at its 40-year high, the market was expecting the most aggressive tightening program in the same time frame.
“These expectations set the stage for a” not that bad “rally if the Fed becomes less aggressive than feared,” he told CNBC. “The first sign of this was today, when Powell ruled out a 75bp hike – that kicked off the rally we’re seeing this afternoon.”
Bitcoin has struggled to find its way back to its all-time high of around $ 68,000 since November as risky assets have been hit year-round by rising inflation, the war in Ukraine and tighter Fed policy. However, cryptocurrency’s infamous volatility has fallen in the short term – well below the shares of some tech darlings like Netflix, PayPal and Meta Platforms – as it has been trading in a tight range since early 2022, between around $ 38,000. and $ 42,000.
“If there are signs of a spike in inflation, the Fed has room to show patience,” Orsini added. “A less aggressive tightening policy would be bullish for bitcoin, ether and digital assets, which continue to rebound stronger than traditional equities.”
The rebound in bitcoin coincided with a rally in the broader stock market. Finally, the S&P 500 closed up 2.9%, while the Nasdaq gained over 3%. The Dow Jones Industrial Average added over 932 points.
Bitcoin, which continues to drive price action in the cryptocurrency market, also remains highly correlated with stock market movements.
“The correlations between digital assets and traditional markets remain significant,” said Josh Olszewicz, head of research at digital asset investment manager Valkyrie Funds. “DXY and the 10-year yield reversed sharply intraday, while the S&P 500 and Nasdaq recorded a modest bullish increase with bitcoin up nearly 3.5% from intraday lows.”