Why Bitcoin and Ethereum Prices Barely Moved After the Last Fed Rate Hike

The crypto market reacted quickly – and predictably – to the latest Fed rate hike on Wednesday afternoon.

Both bitcoin and ethereum prices fell immediately after the Fed’s announcement that it would raise interest rates by another 75 basis points. The crypto market was already in the middle of a tough week. As of Monday, both tokens had fallen more than 10% in the past week.

Crypto has been tight following macroeconomic events, and over the past year the market has consistently reacted negatively to interest rate hikes. In a matter of minutes on Wednesday, bitcoin’s price fell from roughly $19,500 to $18,900. Ethereum saw a more modest price drop, falling more than $50. Both falls represent a drop of more than 3% after the Fed made its announcement.

After an initial rebound immediately following those falls, bitcoin fell back to around $18,800 and ethereum fell back to just below $1,300 late Wednesday afternoon. But these falls were still relatively small compared to previous rate hikes by the Fed. So what gives? It has to do with the market’s expectations, according to experts.

“Everything is relative to expectations, not exactly what’s happening, but what’s happening relative to expectations,” said Joel Kruger, market strategist at LMAX Group, a London-headquartered financial technology firm that operates foreign exchange and crypto exchanges. “Short of some wild price swings in the immediate aftermath, things have gone as expected.”

Here’s what investors need to know about what’s happening with crypto today.

How market expectations are driving crypto prices right now

Experts expected the Fed to raise interest rates by 75 basis points. Because these predictions came true, the crypto market did not see extreme price volatility today, at least nothing out of the ordinary. This is in contrast to July when the Fed announced its first hike of 75 basis points (which was significant).

The Fed has remained consistent in its message throughout this year. Fed Chairman Jerome Powell shared hawkish sentiments — indicating that more aggressive action may be taken in the future — on inflation and further rate hikes in late August. As such, Wednesday’s news was fully in line with expectations, and thus the crypto market did not experience a major shake-up, experts say.

“It’s a bit of a nothing burger,” said Andy Long, chief executive of White Rock Management, a digital asset mining company headquartered in Switzerland. “There was a 10-20% chance of something a little more hawkish, but it didn’t happen. Everyone expected 75 [basis points]and so you can see this afternoon that the downward pressure relaxes a little.”

Long says we will continue to see short-term impact on crypto prices from Fed rate decisions and economic news, but that expectations are already largely priced in before news drops.

Economic news regarding inflation has been particularly important for the crypto market, as it is what drives the Fed to raise interest rates in the US. As such, crypto has reacted negatively to inflation reports recently. For example, crypto prices fell after the US Bureau of Labor Statistics released inflation data in August, with bitcoin prices falling 4% and ethereum 7% over the following 24 hours at that time.

This marks the Fed’s fifth rate hike in a row. If inflation does not ease, it is possible that the Fed will become more aggressive and raise interest rates by a higher number during the last two meetings of the year. That could mean even steeper price drops for cryptos, especially if they don’t align with market expectations.

However, how low crypto prices can go this year is still up for debate. Some experts argue that bitcoin is still poised for a massive drop into the $10,000 range this year, with or without bad news from inflation and the Fed.

Long doesn’t think we’ll see bitcoin’s price hit the 4-digit mark again, but a drop to around $13,000 may not be out of the question.

What should crypto investors do in the face of inflation and Fed rate hikes?

Cryptocurrency is as volatile as investments come, and the current economic climate has strained it. With more interest rate hikes on the horizon and a potentially incoming recession, experts expect more price drops in the crypto market, although this effect could be short-lived if they are in line with market expectations.

As such, experts suggest staying the course with your long-term investments – whether crypto or otherwise – and avoid selling when prices fall. You’re likely to see steep price declines in the coming months, especially if inflation doesn’t improve after the Fed’s fifth rate hike.

“We just have to ride the short-term volatility,” Long said, “and if you believe in the long-term, which I do, you can be long-term bullish.”

Investment experts recommend that you spend a maximum of 5% of your portfolio on crypto. Additionally, experts warn that you should only invest what you are willing to lose, as crypto prices are notorious for wild and sudden jitters.