What Impact Did the Fed’s Interest Rate Hike Have on the Crypto Market?

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The Federal Reserve raised its interest rates by three-quarters of a percentage point rate on June 15, the first time the board has done so since 1994. The move was widely anticipated and comes amid a market that has entered bear territory and inflation at a 41-year high. The hike is also affecting the crypto market, which was already in “crypto winter” mode, with prices slashed across the board, triggering massive layoffs at several companies.

See: Fed Raises Rates 75 Basis Points Amid Bear Market & Record-High Inflation
Find: What Is a Crypto Winter?

On June 17, Bitcoin was around $21,000, down 30% in the past seven days and down 69.6% from its Nov. 10, 2021 all-time-high of $69,044, according to CoinGecko.

Ether, the second-largest crypto, was not faring better, at $1,096 on June 17, down 38.7% in the past seven days and down a whopping 77.5% from its Nov. 10, 2021 all-time-high of $4,878.26, CoinGecko data shows.

Now, while several industry experts anticipate the crypto market to continue to struggle in the near future, they have a more optimistic stance as to the digital assets’ longer-term trajectory, saying they will rebound once inflation is more tamed.

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Oliver Gale, co-founder & CEO at Panther Protocol, an end-to-end privacy solution for Web3 and DeFi, told GOBankingRates that he expects this relatively high-rate environment to be transitory and that crypto will bottom out in the coming months as the economy slows significantly.

“By then, inflation will have been tamed a bit and, in turn, we will resume an upward trajectory for crypto,” Gale said. “I should also note that crypto assets are experiencing the fastest growth of any technology industry in history – almost twice the pace at which the internet was adopted in the 1990s. Despite a bump in the road here, this trend is still intact and will resume in the next year or two. For now, we have to bide our time until inflation is brought down.”

And the sentiment is echoed by many in the crypto industry, who say that the red hot inflation and the Fed’s subsequent 75 bps hike — as well as the additional hikes this year — are having an enormous impact on the discretionary spending of retail investors.  

Michael Rosmer, CEO and co-founder of DeFiYield, a cross-chain, multi-asset management dashboard for yield farming, told GOBankingRates that while the Fed catches up, it’ll take the crypto markets some time to recover.

“For now, most assets are heavily correlated in this risk-off environment, meaning that they are selling off in unison because of the tightened liquidity resulting from inflation and interest rates,” Rosmer said. “There’s just not as much money for investors to dedicate to assets – they’re having to spend more on food and fuel.”

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Rosmer remains optimistic about crypto’s future, however, adding that “inflation will break because demand at the consumer level will essentially be destroyed by the double-whammy of higher prices and interest rates.”

“And when this happens, rates will start coming down and, in turn, markets will have bottomed out. By this point, we can expect digital assets to resume their upwards trajectory,” he said.

Industry insiders are also adamant about noting that digital assets have seen a very quick rate of adoption, and that through that lens, it matters to take a longer-term view to assess how they will fare.

We need to step back and look at the broader trajectory of digital assets as an industry – the rate of adoption is roughly twice that at which the internet was initially adopted, Donnie Dinch, CEO of Web3 company Bitski, told GOBankingRates.

See: Crypto Winter Is Here – How to Manage Your Assets During a Cryptocurrency Bear Market
Find: What Can You Buy Using Crypto — And Is It a Good Idea?

“Indeed soon, when the back of inflation is broken, interest rates will no longer be as pronounced a problem facing investors. This is inevitable, and when this happens digital assets will continue on their meteoric trajectory. It’s all about time horizons, and the horizons are promising if you look out far enough,” he added.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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