Bitcoin BTC price drops slightly after Fed rate hike

Bitcoin’s (BTC) price fell slightly below $28,500 after the US Federal Reserve did what was widely expected to raise interest rates by 25 basis points (bps). The increase sends the Federal Funds rate to a target range of between 5% and 5.25%.

The largest cryptocurrency by market capitalization recently traded at around $28,350, down about a percentage point in the past 24 hours, according to CoinDesk data.

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 will keep a close eye on inflation risks.

At a news conference after the rate announcement, Fed Chair Jerome Powell said that while rates had “moderated somewhat since the middle of last year…inflationary pressures continue to run high and the process of getting inflation back to 2% has a long way to go .”

Powell also said the decision on the rate hike pause “was not made today,” although he noted that the current statement did not signal further rate hikes like previous statements. “The assessment of the extent to which further policy expansion may be appropriate is going to be an ongoing, meeting-by-meeting,” he said, noting uncertainty in credit conditions.

“It’s possible we’ll have what I hope will be a mild recession,” Powell added.

The CME FedWatch Tool showed that currently over 93% of traders see the Fed ending its rate hike diet at the June policy meeting.

Ether (ETH), the second-largest cryptocurrency by market capitalization, recently rose about 0.3% to around $1,878. The CoinDesk Market Index (CMI), which measures the overall performance of the crypto market, was down 1% for the day.

In an email to CoinDesk, Michael Safai, managing partner of crypto trading firm Dexterity Capital, said the latest Fed decision is likely to lead to “mixed outcomes” for crypto traders. “While 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 still not rosy enough to excite crypto traders,” Safai said in an emailed comment.

“Crypto is quiet right now, which means there is not enough exit velocity for the top 10 coins to break out of the macro correlation,” he added. “Bitcoin and Ethereum are more likely to be in range until we see an indication of where inflation is going. Markets could have a bit of a slow summer if the economic recovery follows a measured pace.”

Greg Magadini, director of derivatives at crypto analytics firm Amberdata, pointed out in an email before the Fed’s decision that there will be two consumer price index (CPI) inflation readings before the Fed’s next meeting in mid-June, meaning the possibility of a hike remains on the table.

Magadini said BTC has been driven by macro events this year with Wednesday’s rate hike already priced in.

Stock markets closed down on Wednesday, with the S&P 500 down 0.7 percent. The Dow Jones Industrial Average (DJIA) and technology-heavy Nasdaq Composite fell 0.8% and 0.4% respectively.

In bond markets, the 2-year government yield recently fell 12 basis points to 3.86%, while the 10-year government yield fell 7 basis points to 3.35%.

Crypto investors have struggled to understand the potential impact of recent bank failures and crypto-regulatory feuds on the markets.

“Bitcoin remains entrenched, unlikely to rise above the $30,000 level until the US gets some regulatory clarity,” Edward Moya, senior market analyst at forex market maker Oanda, wrote in a Wednesday note.

Meanwhile, crypto data firm Kaiko’s chart showed that BTC and ETH’s 2% market depth, a metric used to assess liquidity conditions, has approached a nearly one-year low.

Dessislava Ianeva, research analyst at Kaiko, noted to CoinDesk that despite bitcoin’s more than 70% price gains this year, trading volume on centralized exchanges is lower than last year for the same period. She suggested that the low volume stemmed in part from “greater macro and regulatory uncertainty.”

“Market makers are still cautious about adding liquidity and have probably revised their risk management strategies,” Ianeva said, adding that the liquidity gap that emerged after the collapse of the exchange FTX and its trading arm, Alameda Research last 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 big headline reinforces or challenges crypto’s appeal — Bitcoin will continue to trail the broader markets,” Dexterity said Capital’s Safai.