Bitcoin, Ethereum mixed after Fed continues to tighten with quarter-point rate hike

The Federal Reserve said on Wednesday it would raise interest rates by a quarter of a percent (or 25 basis points), pushing ahead with its campaign to curb inflation despite two of the biggest bank failures in US history in the past two weeks.

It raised interest rates to a target range of 4.75% to 5%, reflecting expectations in Fed futures markets, which had pegged an 88% chance of a quarter-point rate hike, according to the Fed. CME FedWatch Tool.

Cryptocurrency prices first rose immediately after the announcement, pushing Bitcoin to $28,800, up 2.2% in the past 24 hours, according to CoinGecko. Ethereum ticked past $1,800. Both BTC and ETH have rallied in the half hour since, and shares are also flat.

Fed Chairman Jerome Powell said earlier this month that interest rates may have to go “higher than previously thought” cites stronger-than-expected economic data during remarks made before Congress.

But expectations for future rate hikes by the Fed changed as signs of stress emerged in the US banking sector, indicating the Fed could take the foot off the break following the closings of Silvergate Bank, Silicon Valley Bank and Signature Bank that began on March 8.

Fed, US Treasury Department and Federal Deposit Insurance Corporation stepped in to mitigate uncertainty and prevent contagion, SVB and Signature guarantee deposits on March 12. The US Federal Reserve also began offering banks loans to help them cope with any liquidity problems.

Whether the measures are enough to prevent further turmoil among banks is unknown, following the forced sale of Credit Suisse to UBS on Sunday and questions surrounding First Republic Bank, which has seen its shares plunge more than 87% since the start of March.

Any indication that the Fed will stop raising interest rates or consider cutting them is positive for digital assets, said William O’Neil + Co head of research Dean Kim Decrypt. On the other hand, cryptocurrencies could suffer if the Fed remains resolute in keeping interest rates high or pushing them further.

“We have been very bullish on Bitcoin and Ethereum, given the fact that we believe the rate hike cycle is coming to an end,” he said. “The Fed must start cutting in the future.”

The Fed started raising interest rates a year ago when it lifted them from near zero last March. Since then, it has aggressively pushed interest rates to their highest levels since 2007.

Last year, it delivered four steep 75 basis point rate hikes in a row, then eased back to a 50 basis point rate hike in December last year. The central bank slowed the pace of interest rate increases to 25 basis points in January yet insisted that the road ahead would be “skinny” and that inflation is still not under control.

Although inflation has shown signs of steady decline since peaking at 9.1% last June – the highest reading in more than 40 years – February inflation measure of 6% is still well above the Fed’s target of 2% annually.

By raising interest rates and making it more expensive for businesses and consumers to borrow, the Fed has gradually cooled the US economy to tame rising prices. But when the Fed tightens, it risks causing a recession by raising interest rates too high or too quickly.

Digital asset prices have been hit as the Fed raises interest rates, making risky assets like stocks and crypto less attractive than more conservative ones like US Treasuries, which have less potential upside but offer guaranteed returns backed by the government.

Since error of Silicon Valley Bank, Bitcoin has risen 44.5% to about $28,800 from about $19,900, and Ethereum has risen 26% to about $1,800 from about $1,400, according to CoinGecko. The market capitalization of all cryptocurrencies has increased to $1.23 trillion from $964 billion, an increase of 27.5% since March 10.