Bitcoin drops below $27K as Fed, Powell keep focus on inflation

The decision reinforced the central bank’s concern that inflation was still problematic. The FOMC is “strongly committed to returning inflation to our 2% target,” Fed Chairman Jerome Powell said after the announcement.

But in a statement accompanying the rate hike Wednesday afternoon, the FOMC also acknowledged this month’s near-bank meltdown, saying “recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation.”

The largest cryptocurrency recently traded at around $27,030, down 4.1% in the past 24 hours with the BTC/USD trading pair plunging as low as $26,815 on the Coinbase exchange at one point. Earlier on Wednesday, BTC had changed hands as high as $28,815, hitting its highest level since June 10 as some investors appeared hopeful for a potential end to the Fed’s year-long diet of hawkish rate hikes. The Fed dashed those hopes.

Still, a number of analysts were optimistic about bitcoin’s price in the near future, given the banking sector’s woes. “Bitcoin, which straddles the line between being the leading risk asset and a financial lifeboat in the event of an all-out banking crisis, has benefited from the recent turmoil and now the prospect that Fed tightening may be over,” lead author James Lavish. partner in the Bitcoin Opportunity Fund, told CoinDesk in an email.

However, Lavish said he would still expect volatility going forward as the recent banking crisis continues. “We’re marching towards a recession, or worse, a much bigger credit event occurs,” he said.

Samir Kerbage, chief investment officer at crypto asset manager Hashdex, told CoinDesk via email that “while this rate hike is a negative for risk assets in general, it is positive for bitcoin and gold as this puts more stress on the banking sector.”

Vineeth Bhuvanagiri, CEO of EMURGO Fintech, the founder of the Cardano blockchain, also noted in an email to CoinDesk that “banks are really struggling,” adding that “governments need to go back to massive liquidity injections into countries . up the financial sector. And bank runs force investors to rethink what it means to actually own assets – that is, they realize that deposits in banks can have a large counterparty risk.

Ether (ETH), the second largest cryptocurrency by market capitalization, is recently hovering around the $1,740 level, down 3.1% from the same time on Tuesday. Among other major digital currencies, crypto-payments platform Ripple’s native XRP token was recently down 11%, a reversal from earlier in the day when XRP jumped 20% following reports on Tuesday that Ripple was well positioned to win a landmark case with the US Securities and Exchange.

Traditional markets slipped into the red, albeit not by much after the Fed announcement with the S&P 500, Dow Jones Industrial Average (DJIA) and tech-heavy Nasdaq all closing down 1.6%.

The 2-year Treasury yield, a gauge that usually reflects near-term interest rate expectations, fell to 3.93%.

The US central bank’s decision comes after the consumer price index for February showed monthly inflation fell to 6% from last month’s 6.4% reading, and the annual core interest rate, which strips out volatile energy and food costs, edged down slightly. The falling CPI suggested that Fed measures were at least slowly taming inflation and lent support to monetary policy observers who have insisted in recent months that the Fed had overreached.

“I think Powell is going to be very sensitive about surprising the market,” Ben McMillan, chief investment officer at crypto asset manager IDX Digital Assets, told CoinDesk ahead of the decision.

But McMillan claimed he had seen a more bullish stance on risky assets.

“We’ve noticed that people are starting to think of bitcoin as the same bucket now as commodities or hard assets like stores of value,” he said.

In an email to CoinDesk, Brent Xu, CEO and co-founder of Umee, a Web3 bond market platform, wrote that bitcoin had “shown remarkable strength during this global crisis involving the banks.”

“Something akin to a mini bull run could be in play, but I think caution is warranted here,” he wrote. “The Federal Reserve may continue to raise interest rates higher than expected – that is, beyond this latest 25 basis point increase – given that inflation has not yet been tamed. A pullback may be in the offing because of this, meaning that it is only for uncertain a time right now for more definitive talks.”

James Rubin contributed to this report.

UPDATE (March 22, 2023, 20:28 UTC): Updates with the latest XRP and CoinDesk Market Index numbers.