Crypto Market Consolidates Off Biggest Rate Hike in 28 Years

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Crypto Market Consolidates Off Biggest Rate Hike in 28 Years
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key takeaways

Many top crypto assets have broken out of a week-long downtrend following yesterday’s FOMC meeting. Bitcoin has bounced off psychological support at $20,000, making another attempt to reclaim its 200-week moving average All eyes are now on whether Bitcoin can hold its previous cycle high around $19,641 amid growing macroeconomic adversity .

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Contrary to bearish expectations, crypto markets appear to have stabilized near the Fed’s promise of aggressive rate hikes.

Crypto breaks downtrend

For now, the crypto market appears to have stabilized.

Many top crypto assets have broken out of a week-long downtrend following yesterday’s Federal Open Market Committee (FOMC) meeting. Federal Reserve Chairman Jerome Powell confirmed predictions that the U.S. government will start taking a more aggressive stance to fight inflation, raising interest rates by 75 basis points — the largest increase since 1994.

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While rate hikes to fight inflation are typically bad for risk assets like cryptocurrencies, recent news appears to have taken some of the uncertainty out of the market, with the Fed’s firm commitment to a more hawkish stance leading to a mild relief rally. Bitcoin has bounced off psychological support at $20,000, making another attempt to reclaim its 200-week moving average, currently around $22,300.

BTC/USD weekly chart. Source: TradingView

Other cryptoassets fared significantly better. Ethereum, the second-largest cryptocurrency after Bitcoin, rose more than 8% on the day, also rebounding from the $1,000 level. Layer 1 chain Solana is another clear winner, up 11% from Tuesday’s low of $27.20. It is currently trading at around $31.

Despite being the largest rate hike in nearly 30 years, the Fed’s 75-point rate hike wasn’t entirely unexpected. On Friday, the latest consumer price index report showed that, contrary to some economists’ expectations, inflation did not peak in April, but instead climbed to a new annual high of 8.6%. Market participants may be expecting more aggressive rate hikes due to the CPI data, meaning a 75-point hike has been “priced in” by many traders.

However, the long-term market outlook still looks shaky. Yesterday’s FOMC meeting also showed that the median year-end forecast for the federal funds rate by the end of 2022 had been raised to 3.4%, raising the prospect of more aggressive rate hikes for the rest of the year.

In the cryptocurrency market, all eyes are now on whether Bitcoin can hold onto its previous cycle high around $19,641 amid growing macroeconomic headwinds. If this level breaks, it will be the first time in Bitcoin’s history that it has failed to hold the previous cycle’s all-time high as support.

Disclosure: At the time of writing, the author owns ETH, SOL, and several other cryptocurrencies.

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