Crypto Investors on the Lookout for the Fed’s Interest Rate Hike
2022.07.27 18:21
Crypto Investors on the Lookout for the Fed’s Interest Rate Hike
- The bearish cryptocurrency trend continues to draw on due to pessimistic expectations about the U.S. Federal Reserve’s attempts to control inflation.
- Experts generally agree that interest rates will remain high for as long as prices rise, which is generally considered bad news for the crypto market.
After recovering last week, Bitcoin’s (BTC) price has fallen again. The world’s largest cryptocurrency by market capitalization was trading at $20,982 on Tuesday, July 26th at 13:51 (UTC), losing 4.44% in the last 24 hours, according to CoinMarketCap.
Optimistic analysts had hoped that cryptocurrency had made it through the bear market, and would manage to settle in the $25,000 range. But expectations of a further interest rate hike by the US Federal Reserve this week have seen the value of BTC plummet once gain.
In fact, the recovery in BTC’s price, which saw it reach $24,000 last week, was largely due to the fact that analysts had assumed that the Federal Open Market Committee (FOMC) would likely increase interest rates by around 75 basic points (0.75%), and not the 100 later speculated (bps).
This perception is based on the previous 0.75 point increase made by the Fed in June, marking the highest hike in four decades, and the behavior of bitcoin futures contracts. However, the downward trend continued, with some experts attributing the fall to the Fed’s continued aggressive application of monetary policy, which may remain for some time to come.
There Will Be No “Soft Landing”
Strategists at Morgan Stanley (NYSE:MS) believe that interest rates will remain high. These concerns are exacerbated by the clouds on the horizon, heralding the arrival of a potential recession, which would end the Fed’s hope of controlling inflation with a “soft landing”.
Ultimately, this means that the prices of shares, and more so those of crypto assets, will continue to fall even further. Digital assets have been the first victims of the recession fears caused by rising interest rates.
The crypto winter came as a consequence of the cryptocurrency price crash that dragged down several lenders and other DeFi companies, as well as fragile and insecure cryptocurrency projects like Terra (Luna).
The Odds of a Recession Increase
Economists surveyed by Bloomberg this month estimate the probability of a recession in the next 12 months to be 47.5%. In June, the same survey determined that only 30% projected a forthcoming recession, indicating rising tension.
“We have to curb things domestically to help us get where we want to go on inflation,” said Michael Gapen, Bank of America’s Chief U.S. Economist. The executive predicts that a recession will begin in the second half of this year.
Fed chief Jerome Powell expressed his preference for a recession to be triggered if it leads to nipping inflation in the bud, thereby restoring the prices of goods and services to normal levels.
Another survey conducted by Reuters among a group of economists also produced more or less similar results. According to the study’s conclusion, the chances of a recession in the U.S. next year stands at 40%.
Regarding the increase in interest rates, there is an almost unanimous opinion that they the Fed intends to increase them by 0.75, rather than 100 basis points.
On the Flipside
- Pessimistic investor sentiment about the Fed failing to bring inflation under control continues to hit Bitcoin and other cryptocurrencies.
- Strategists at Bloomberg believe that “the Federal Reserve will probably have to inflict much more pain on the economy to get inflation under control.”
Experts warn that the price of Bitcoin may continue to slide as far as $10,000, rather than push to $30,000 as many had hopes. So far, Bitcoin has held out above the $20,000 barrier.
Though none can be certain of the impact of the Fed’s decision on BTC’s price this week. It seems that the bear market in cryptocurrencies will continue until the economy shows clear signs of improvement.
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