For cryptocurrency traders, the latest interest rate increase by the Federal Reserve may have been a case of “sell the rumor, buy the news”. When traders foresee a specific event or announcement, they may sell off their assets in expectation of a negative outcome. When the event or news really occurs, however, the market frequently recovers because the adverse effect turns out to be less severe than anticipated.
Just three hours after the US Federal Reserve announced its decision to raise interest rates by 25 basis points, Bitcoin experienced a sharp rise above $29.2k. The markets reacted favorably to this, which raises the possibility of a rise in the near term.
At first glance, it doesn’t seem that the interest rate increase hurt the price of cryptocurrencies, which has some people believing that they won’t have to worry about fiscal policy again until June. For Bitcoin, which has been closely tied to equities over the previous 18 months, the fact that interest rates have increased by 5% is not good.
However, there are more and more signs that the correlation between the two industries may be waning. This is demonstrated by the fact that the interest rate increase today had little effect on the crypto market, as opposed to how every time Jerome Powell, the Chairman of the Federal Reserve, made a comment in 2022, there were large market cap losses.
The recent rate hike decision has had a positive impact on the cryptocurrency market, with Bitcoin experiencing a 2.1% increase in the past 6 hours and an increase in trading volumes across top market cap assets. The high level of address activity on Wednesday, compared to the past week, suggests that the rally was related to the rate hike becoming official.
Notably, there are no extreme shorts on the largest market cap assets, with Binance Coin’s extreme short ratio returning to even after the Fed decision. It’s important to consider how speculation about the Fed decision may have overshadowed its actual impact.