Bitcoin Surges After Fed Relaxes on Interest Rate Hikes

The price of Bitcoin rose above $24k following the Fed’s announcement of an interest rate hike.

Jerome Powell holding huge arrow.
  • The US Fed raised interest rates by 25 basis points, down from 50 bps last December.
  • Fed Chairman Jerome Powell revealed that inflation is gradually slowing down. 
  • The development coincides with an increase in Bitcoin’s value to above $24,000. 
  • The total crypto market cap rose to $1.05 trillion after plummeting to $790 billion last January.
  • The Fed increased interest rates seven times in 2022 to 425 basis points.

The recent rebound of the Bitcoin (BTC) market has gained momentum as the US Fed has slowed the interest rate hike. On Wednesday, the Federal Reserve announced raising its short-term borrowing rate by 25 basis points.

The United States Federal Reserve Chairman Jerome Powell revealed in a press briefing that inflation is gradually slowing down in the U.S. economy. 

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“Inflation data received over the past three months show a welcome reduction in the monthly pace of increases,” Powell said. “We can now say, I think, for the first time that the disinflationary process has started.”

This recent interest rate hike is a decrease from the previous increase of 50 bps last December.

The development coincides with the rally of Bitcoin, which saw the most valuable cryptocurrency surge above $24,000

Amid Bitcoin’s rebound, the market capitalization of the cryptocurrency reached $1.05 trillion after plunging to $790 billion in January 2023. The crypto space has recovered slowly from its previous year’s loss, with a growth of about 4%. In comparison, Bitcoin enjoyed a 40% increase last month, representing its best ever return in January.

Fed’s Trend of Hiking Inflation

Bitcoin had a challenging 2022 due to multiple factors, including the aggressive stance against inflation by Fed. Over the course of the year, the Fed raised interest rates by 425 basis points in seven different hikes. Four hikes saw the Fed increase its rate by 75 basis points, 50 basis points on two occasions, and 25 basis points once. 

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However, Powell emphasized the commitment of the Fed to continue its assault against inflation and stated that the interest rates must maintain a strong position if inflation continues to soar. Powell explained that hiking interest rates is necessary to tame rising inflation. 

“And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path,” Powell stated.

The Fed’s hawkish stance has contributed to a decline in inflation, as a recent government report indicated that the inflation rate dropped to 6.5% in December.

On the Flipside

  • While the FED confirmed they want gradual easing if they can manage inflation, they also clarified that they would continue raising rates until inflation is under control. So the Fed is currently expecting two more interest rate raises.

Why You Should Care

Fed Chairman Jerome Powell’s remarks about decreasing inflation have positively affected the crypto market. Apart from Bitcoin surging by 5.59% in about five hours, altcoins like Ethereum, BNB, MATIC, and DOGE also had a price rally. Following the Fed’s announcement of a less aggressive rate hike, Bitcoin’s market cap rose by $9 billion.

 

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This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Soumen Datta

Soumen has been a dedicated researcher and writer in the field of cryptocurrencies for the last few years. Even though Indian crypto regulations are still unclear, he believes that India will continue to innovate in the years to come. He loves to play his guitar and sing along in his spare time. He holds bags mostly in BTC, ETH, BNB, MATIC, ADA.