Despite the fact that short-term volatility is impacting on prices, market participants warn that an inevitable loosening of monetary policy in response to the pandemic and other crises means Bitcoin and other cryptos will find value as a hedge against runaway inflation.
Cryptocurrencies, which had been battered by a selloff, rallied alongside other assets on Thursday, as the Federal Reserve approved the largest interest rate hike since 1994 and offered monetary policy guidelines, relieving market concerns to some extent.
At a two-day policy meeting that finished on Wednesday, the Federal Open Market Committee (FOMC) agreed to a 0.75-percentage-point rate hike. The benchmark federal-funds rate will be raised to between 1.5% and 1.75% as a result of the decision.
Following an after-the-fact recovery in stocks and other assets, Bitcoin gained 10.5% and Ethereum climbed 15.5% in the hours following the Fed’s decision to cease market speculation about interest rates.
A partner at Q9 Capital, James Quinn, stated:
“The market, I think, appreciated that the Fed went straight with 75 [basis points] and that we have a chance of getting in front of [inflation] a little earlier. Even though it might cause more short-term pain, bad news is good news for the moment, so to speak.”
The head of communications at crypto exchange Bybit, Igneus Terrenus, declared:
“The Feds’ announcement fell in line with market expectations, and the recovery managed to get across the line for the time being. However, with the hawkish FOMC, and the attendant risk of rising unemployment and recession, short-to-medium term retail appetite toward risk-on assets such as Bitcoin will decline.”
Despite Wednesday’s recovery, Bitcoin’s price was listed at US$21,844.80 on CoinMarketCap, down more than a quarter from last Friday, when a 12-month measure of US consumer prices revealed inflation in May was at a 40-year high.
The total crypto market value has risen more than 10% since the Fed decision, according to CoinMarketCap, however it has yet to regain the US$1 trillion dollar level it had held since January 2021.