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BTC experienced a minor decline below the $28,500 mark following the expected decision by the U.S. Federal Reserve to raise interest rates by 25 basis points (bps). The federal funds rate is now in a target range of 5% to 5.25%.
CoinCryptoUS data shows that the cryptocurrency with the highest market capitalization was trading at roughly $28,350, indicating a decrease of around 1% in the past 24 hours.
The Fed's decision on Wednesday marked the 10th rate hike in 14 months. In its statement accompanying the rate hike, the Fed's Federal Open Market Committee (FOMC) said that “tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation,” and that it would keep close attention to inflation risks.
In a press conference following the rate announcement, Fed Chair Jerome Powell said that although prices had “moderated somewhat since the middle of last year … inflation pressures continue to run high and that the process of getting inflation back down to 2% has a long way to go.”
Powell clarified that the decision to pause rate hikes was not made on the day of the announcement, although he acknowledged that the current statement did not suggest any additional rate hikes, as previous statements had. He stated that "The assessment of the extent to which additional policy firming may be appropriate is going to be an ongoing one, meeting by meeting," and emphasized that credit conditions remained uncertain.
“It's possible we'll have what I hope will be a mild recession,” Powell added.
The CME FedWatch Tool currently indicates that over 93% of traders anticipate a pause in the central bank's interest rate hikes at the upcoming June policy meeting.
Ether (ETH), the cryptocurrency with the second-largest market capitalization, saw a modest uptick of around 0.3%, reaching a price of approximately $1,878. Meanwhile, the CoinDesk Market Index (CMI), which provides a broad overview of the crypto market's performance, decreased by 1% over the course of the day.
In an email to CoinDesk, Michael Safai, managing partner of crypto trading firm Dexterity Capital, said the latest Fed decision would likely lead to “mixed outcomes” for crypto traders. “While the language on future rate hikes was softened, the Fed left the door open by saying that future decisions will be macro data dependent. Inflation data is improving but it still isn’t rosy enough to excite crypto traders,” Safai said in an emailed comment.
“Crypto is quiet right now, which means that there isn’t enough exit velocity for the top 10 coins to break out of the macro correlation,” he added. ”Bitcoin and [ether] are more likely to be range-bound until we see some clue as to where inflation is going. The markets could be in for a bit of a slow summer if the economic recovery follows a measured pace.”
Before the Fed's decision, Greg Magadini, the Director of Derivatives at crypto analytics firm Amberdata, noted in an email that there will be two readings of the Consumer Price Index (CPI) inflation prior to the central bank's next meeting in mid-June. This indicates that the possibility of a rate hike cannot be completely ruled out.
Magadini observed that macroeconomic events have played a significant role in driving BTC's performance this year. He further noted that Wednesday's interest rate hike had already been anticipated and priced in, suggesting that its impact on the cryptocurrency's price would likely be limited.
On Wednesday, the equity markets ended the day on a down note, with the S&P 500 slipping by 0.7%. Similarly, the Dow Jones Industrial Average (DJIA) and the tech-focused Nasdaq Composite also closed lower, decreasing by 0.8% and 0.4%, respectively.
In the bond markets, the yield on the two-year Treasury note has recently declined by 12 basis points, settling at 3.86%, while the yield on the 10-year Treasury note has fallen by 7 basis points to reach 3.35%.
Crypto investors have been grappling with uncertainty around the potential impact of recent bank failures and regulatory disputes on the overall stability and growth of the crypto markets. The lack of clarity and consistency in regulations across different jurisdictions has added to the complexity of navigating this space, leaving many investors unsure of how to proceed.
“Bitcoin still remains anchored, unlikely to rally above the $30,000 level until the U.S. gets some regulatory clarity,” Edward Moya, senior market analyst at foreign-exchange market maker Oanda, wrote in a Wednesday note.
Additionally, a chart from Kaiko, a data firm specializing in cryptocurrencies, indicated that the 2% market depth of BTC and ETH, a measure used to evaluate liquidity, has dropped to almost one-year lows.
According to Dessislava Ianeva, a research analyst at Kaiko, despite Bitcoin's price increase of over 70% this year, the trade volume on centralized exchanges has decreased compared to the same period last year. She believes that this is due to the "greater macro and regulatory uncertainty" affecting the market.
“Market makers are still cautious about adding liquidity and have likely revised their risk management strategies," Ianeva said. She added that the liquidity gap that emerged after the collapse of exchange FTX and its trading arm, Alameda Research in November is “proving persistent.”
“Liquidity will, hopefully, return in time and critical mass will build in newer areas of the digital asset space. But until that happens – or a major headline reinforces or challenges crypto’s appeal – bitcoin will keep tracking the broader markets,” Dexterity Capital’s Safai said.
Source Coindesk
