With the Federal Reserve’s Federal Open Market Committee (FOMC) increasing interest rates to 22-year highs, Bitcoin traders are keeping a keen eye on Fed chair Jerome Powell. The continuing development and shape of the Bitcoin market will depend heavily on the policy decisions made by the Fed. Depending on the direction of Powell’s decisions, Bitcoin traders could be poised to make big moves in the crypto market.
1. Bitcoin Investors Brace for Future Rates Hike
As the market continues to fluctuate, Bitcoin investors are keeping a close eye on the Federal Reserve’s upcoming rates hike and how this could potentially influence the cryptocurrency.
Adoption
Since its launch, the digital currency has been embraced by the financial industry, passed governmental scrutiny, and has been referred to as the new “digital gold”. Despite this, its lack of regulations and the risk of potential hacks had hindered its ascension in the markets.
- This year, it saw its largest increase in price, with it reaching an all-time high of over $20,000 at the end of 2017.
- The newly found stability and high value caused many individuals and businesses to invest in this form of digital currency.
Effect of Rates Hike
The rates hike by the Federal Reserve could have a strong impact in its market stability. As investors become increasingly worried, it could influence them to withdraw their investments in search of safer options. As a result, Bitcoin’s value could drop and cause a financial shockwave.
2. Fed Chair Jerome Powell’s Influence on Bitcoin Prices
Fluctuating Prices of Bitcoin
Bitcoin has been quite volatile in the past few years, with its price reaching an all-time high of near $20,000 in December 2017 and continuing to move in a roller-coaster-like pattern since then. Many investors, traders, and analysts now look to Jerome Powell and the Federal Reserve for clues on the future direction of the cryptocurrency.
As the Fed chairman, Powell has made public statements that have had a visible impact on Bitcoin prices. His comment after the June meeting of the Federal Open Market Committee caused Bitcoin to drop more than 10 percent. And during a press conference after the September meeting, he said that the Fed still had tools available to influence the market, resulting in a sudden jump in bitcoin prices.
In particular, traders keep a close watch on the Fed’s stance on controlling short-term interest rates, as changes in these rates can affect money flows and cause Bitcoin prices to move. Therefore, as long as Powell remains in office, his influence on the price of Bitcoin is likely to remain.
- Powell’s public statements have had a visible impact on Bitcoin prices.
- Currency traders keep close watch on the Federal Reserve’s stance on controlling short-term interest rates.
- As long as Powell remains in office, his influence on Bitcoin prices is likely to remain.
3. Fed Rate Hike Impact on Bitcoin Market
Since its induction into the financial market in 2009, Bitcoin has been a highly volatile asset that has moved with changing conditions in the mainstream stock market and global economy. As the Federal Reserve began hiking interest rates in late 2017, traders have asked what impact higher interest rates – and a stronger US Dollar – might have on cryptocurrency markets such as Bitcoin. Below, we’ll examine the potential effects of a higher Fed rate on the Bitcoin market.
1. Decoupling of Bitcoin and FX Markets: As interest rates have risen, most FX traders have reduced their exposure to risk with a flight to safe haven currencies such as the Japanese Yen and US Dollar. However, Bitcoin’s has not been so affected given the digital currency’s continued lack of correlation to mainstream markets. Theoretically, Bitcoin should be seen as a safe haven asset as long as its lack of correlation to other finanial markets continues.
2. Potential for a Bullish Effect on Bitcoin: Given the volatility of the Bitcoin market, it can be difficult to predict the effect any event would have on the market. However, some analysts believe that a rise in the Fed rate could have a potentially bullish effect on the price of Bitcoin as investors sees a potential hedge against inflation. The Fed’s rate hike could also increase the demand of Bitcoin, as investors in traditional markets look for stable investments with higher returns.
3. Low Impact on Long-Term Bitcoin Performance: The reality of the situation is that when it comes to the future of Bitcoin, the actual performance and price movements in the near-term have little bearing on its long-term performance. Bitcoin has defied all expectations since its first recorded transaction in 2009, and its resilience could mean that any violent movements due to rate hikes would not have a lasting effect.
4. Bitcoin Traders Boost Volatility in Market
Bitcoin traders are actively influencing the financial markets, causing unusually high volatility. This is all due to their preference for trading cryptocurrencies over traditional assets. According to analysts, bitcoin traders have become an influential driving force this year.
With a potential upside of nearly 40%, bitcoin traders could be well positioned as the coronavirus pandemic advances, providing an environment that rewards short-term profits. The coin’s underlying value is still uncertain, but traders continue to flock to bitcoin as a store of value and major hedge against national currencies.
The recent surge in bitcoin prices has encouraged more people to trade the cryptocurrency, creating a surge in market volatility. The traders’ confidence is due to a combination of fewer government and central bank interventions and a shrinking global economy.
- Bitcoin traders are actively driving up market volatility
- Investors are attracted to bitcoin due to its potential upside
- Bitcoin traders are now more confident, primarily due to reduced government and central bank interventions
The surge in the Federal Reserve’s interest rate to its highest level in 22 years signals a new level of market volatility and cautiousness among Bitcoin traders. The market will be following Fed chair Powell’s words closely as the rate increase could have a drastic effect on Bitcoin volatility and prices. It remains to be seen how this move will affect the Bitcoin market.