Crypto market wrap: Prices up on Fed rate hike
Updated
Cryptocurrency prices rose across the board Wednesday as the US Federal Reserve introduced another interest-rate hike.
Altcoin prices and bitcoin jumped as the Fed maintained its tough stance against inflation, raising its benchmark interest rate by the expected 75 basis points.
The sweeping crypto price gains resulted after two straight days of widespread declines amidst uncertainty about what the Fed might do.
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Response surprises analyst
“The response to the hike was a bit surprising and showed that investors might have been anticipating a 100-basis- points hike or some more hawkish language from the Fed, neither of which came to light,” Weiss Ratings analyst Alex Benfield told Capital.com.
“Investors certainly were a little worried leading up to [Wednesday] as it seems like inflation has not cooled off in any realistic way and the reality that we are in a recession seems likely,” Benfield added.
Alex Benfield, Weiss Ratings analyst (Photo courtesy of Alex Benfield)According to Benfield the response to the hike was 'surprising' and showed that investors were anticipating a 100-basis- points hike.
“Investors certainly were a little worried leading up to [Wednesday] as it seems like inflation has not cooled off in any realistic way and the reality that we are in a recession seems likely,” Benfield said.
Sell-off was anticipated
He said the sell-off that occurred Monday and Tuesday in advance of the rate hike was not a surprise.
“There were multiple events that the market had been anticipating this week, first and foremost [Wednesday’s] Fed announcement,” he said. “Investors certainly were a little worried leading up to [Wednesday] as it seems like inflation has not cooled off in any realistic way and the reality that we are in a recession seems likely.”
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Ethereum Classic up 14%
Ethereum Classic (ETC) was up about 14% around the time that conventional markets closed in North America on Wednesday. Ether (ETH), also backed by the Ethereum blockchain network, climbed 8% and surpassed $1,600. FLOW, up 9%, and Nem (XEM), which saw an 8% rise, were also among the biggest gainers.
(All crypto increases based on CoinMarketCap data.)
Bitcoin approached $23,000 as it rose 3%. The world’s largest cryptocurrency continued to climb in the afternoon after traditional markets shuttered.
BTC on the rise
As has often been the case since January, crypto’s upswing was in line with stock market and macroeconomic trends.
Following the Fed’s decision, all three major US benchmarks – the Dow Jones Industrial Average and the S&P 500 – were in the green, while the NASDAQ 100 led the indices’ rebound.
XEM to USD
Is crypto a hedge?
Crypto enthusiasts have often claimed that digital coins offer a hedge against inflation. Many investors in Argentina and other parts of Latin America prefer bitcoin and other crypto assets over fiat, or traditional money, due to inflation and lack of trust in traditional currency.
Still a risk asset
However, Benfield said crypto’s strengths as a hedging tool have yet to be realized.
“The crypto-inflation-hedge narrative certainly seems a bit battered at this point, and it’s safe to say that in the short term crypto is not the best inflation hedge and is still treated as a risk asset,” he said.
“That might be due to the increase in institutional holdings – those holders will tend to treat crypto as a regular risk asset and squeeze their investments for cash when times get scary.
Now, crypto as an inflation hedge over the long term is still up in the air and, in my opinion at least, has a far better chance of coming true over the course of the next decade.”
Further adoption ‘inevitable’
With the world facing multiple years of higher-than-usual inflation, he believes that further crypto adoption is inevitable as more people start to realize the benefits of an asset that “can't be manipulated and inflated away by government control.”
But continued crypto price increases are from certain this week as the US prepares to release GDP data on Thursday and more economic outlooks are set for release elsewhere.
“The week isn't over yet, so I would expect some more volatility as things play out,” said Benfield.
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