How the Latest Fed Rate Increase Could Impact Crypto Prices, Based on These 3 Charts

A photo to accompany a story about cryptocurrency and the Fed meeting Getty Images
Chairman of the U.S. Federal Reserve Jerome Powell and his colleagues held a two-day meeting this week, at which they decided to raise the federal funds interest rate by 75 basis points.
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If your crypto investments see some extra volatility this week, you can thank the Federal Reserve. 

That’s because the Federal Reserve just announced another big rate increase as it continues its effort to squash stubborn inflation. The Fed raised interest rates by 0.75% on Wednesday, the fourth consecutive increase since the start of the year.

If it’s anything like the last few Fed meetings, crypto investors could be in for another rollercoaster this week. Historic price charts show how bitcoin’s price dropped by at least 10% or more following the last three Fed meetings in March, May, and June. 

Here’s a closer look:

Bitcoin’s price briefly declined during the week of March 13, the same week as the Fed’s second meeting this year, before climbing back up. The Fed approved a 0.25% rate hike, which was the first increase since 2018.
Bitcoin’s price spiked immediately after the Fed’s meeting on May 3 and 4, but then began to decline significantly on May 6. The Fed in May approved a half percentage point hike and laid out a plan, starting in June, to reduce the central bank’s $9 trillion balance sheet. 
Bitcoin’s price dipped as low as $17,500 following the Fed’s two-day meeting on June 14 and 15. The Fed raised interest rates by 0.75%. 

While historic data doesn’t clearly indicate how markets will react in the future, especially in the volatile and unpredictable crypto market, experts largely agree that investors should expect new volatility this week following the Fed’s rate increase announcement. Sentiment in the crypto market appeared slightly bearish to start the week, though crypto prices climbed immediately following the announcement. Bitcoin is trading above $23,000 and ethereum trading above $1,700 as of Thursday afternoon, both up more than 10% in the last 24 hours.

“The FOMC decision provided optimism that the end of tightening is in sight and that triggered a nice rally for risky assets that helped elevate cryptos,” says Edward Moya, a senior market analyst at Oanda.

This happened against the backdrop of mounting recession fears which made this week’s second-quarter GDP report and earnings reports all the more important. The U.S. GDP report on Thursday revealed negative economic growth in the second quarter, fueling fears that a recession may have already begun. A technical recession is defined as two consecutive quarters of negative economic growth.

“We do know that it’s rumored that we are going to increase rates by 75 basis points. If they only release rates at 75 basis points, we shouldn’t see any type of bad things happening in the market,” says Wendy O, a crypto expert and educator. “But at the same time, it could get canceled out when the second-quarter GDP report is released.”

How the Fed Meeting Can Affect the Crypto Market 

Aggressive rate hikes are not positive for crypto prices, and experts say the choppiness will likely continue in the short term. 

Risky assets like stock and crypto have been heavily correlated since the start of 2022. Both have been moving in unison and have struggled to gain any momentum this year as investors are pulling away in response to rising interest rates, surging inflation, and a potential recession. If the stock market dips because of the rate hike this week, the crypto market likely will too — and vice versa.

The Fed’s interest rate hike in June was one of many factors that rocked the crypto market in particular, which was already in “crypto winter” mode with prices slashed across the board. Bitcoin and ethereum fell down more than 70% in June since the peak of last year’s bull run. 

Investors are keeping a close eye on bitcoin, ethereum, and the crypto market at large to see “possible retest of the June lows,” according to Edward Moya, a senior market analyst at Oanda.

“The majority of crypto watchers are still awaiting further weakness,” Moya says. “As global recession calls grow, the focus will switch to how soon the Fed will be cutting rates.”

It’s difficult to know whether the market has already priced in this week’s potential rate increase, says Joshua Fernando, crypto expert and CEO of eCarbon, a blockchain tech company focused on carbon emissions allowances.

“75 basis points appears to be the consensus, so if we see something notably higher and it kills the equity market, then I would expect the crypto market to follow suit,” Fernando says. “Vice versa in the lower rate increase case. More important will be the guidance the Fed gives. If the Fed signals strong rate hikes through 2023, expect more pain in the markets.”

What Does the Fed Meeting Mean for Crypto Investors?

Any significant developments with the Fed, corporate company earnings, or the second-quarter GDP report this week shouldn’t drastically alter your long-term crypto investment strategy

If anything, it’s a reminder for investors that crypto assets come with additional risk and volatility, especially in times of economic and political uncertainty. Despite the positive momentum over the last week, the crypto market is still no where near where the highs it reached last year — with bitcoin and ethereum still down more than 50% since November. 

Given the crypto’s history of volatility, prices are just as likely to fall back down as they are to continue climbing — and it’s extremely difficult to predict with certainty where they’ll go next. 

With so much economic uncertainty in the air, now is the best time to play it safe by allocating no more than 5% of crypto to your investment portfolio and investing only what you’re OK with losing. Always make sure your financial bases are covered — from your retirement accounts to emergency savings — before putting any extra cash into a volatile, speculative asset like crypto.