Bitcoin is Ripping Higher after the FED Hiked Rates to 2.5%

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Bitcoin
Bitcoin is Ripping Higher after the FED Hiked Rates to 2.5%

On July 27, Bitcoin prices shot 10 percent on news that the U.S. Federal Reserve (FED) had raised funding rates by 0.75 bps to 2.50 percent, further pumped the chairman of the Federal Open Market Committee (FOMC) acknowledging that inflation was “too high”.

Bitcoin is Pumping

According to trackers, BTC is currently trading at $22.77k, rising from around $20.82k registered on July 27, a refreshing move for the general crypto and trading community. Following disappointing crashes in the first half of the week, recovering Bitcoin and digital asset prices is a breather for traders and investors.

Even though Bitcoin is still more than half its 2021 all-time highs, $20k is proving to be a reliable pivot where traders have been accumulating, adding to their longs, as on-chain data shows. In subsequent sessions, Bitcoin prices will likely continue to pump in response to fundamental developments in the U.S.

Since the FED admits that inflation is high and the economic metric is failing to taper despite the central bank raising rates for the third straight sitting, Bitcoin could be a major beneficiary in short to medium term.

An extract from the FOMC statement reads:

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 2.25 to 2.50 percent and anticipates that ongoing increases in the target range will be appropriate.

Bitcoin is Deflationary

Bitcoin is designed to be deflationary, and proponents are adamant that the digital asset can be a store of value during periods of economic turmoil.

However, factoring in low adoption amongst institutions primarily because policymakers have been unable to keep up with the fast pace of innovation, crypto continues to be labeled as a speculative asset.

Therefore, as central bankers worldwide wean the financial markets from cheap credit by tightening interest rates to manage runaway inflation, investors have been exiting their capital in crypto, mainly Bitcoin, and equities, flocking to the safety of the greenback and government bonds.

Taming Runaway Inflation

The FED, market analysts observe, is reverting to overnight fund rates as their principal monetary policy tool to manage runaway inflation for the first time since the 1990s. Coincidentally, with year-on-year inflation at 9.1 percent, the highest consumer price index (CPI) level since 1986, the FED is unwavering in its commitment to lower inflation and will unleash all tools at its disposal.

Their decision to keep raising rates as an inflation management tool is at the expense of growth and flashes with economists’ worry that the U.S. could be in a recession, a preview the FED chair denies.

We think it is necessary to have a growth slowdown. Growth is going to be slowing down this year for a couple of reasons. We actually think we need a period of growth below potential to create some slack.

Ahead of this development, Crypto.News reported that Tesla had liquidated 75 percent of its BTC holdings.

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Dalmas Ngetich

Dalmas is a very active blockchain and cryptocurrency content creator and highly regarded Technical Analyst. He is a Mechanical Engineer by profession and an activeTrader, whose first encounter with Bitcoin was in 2015—and by accident. Ever since, it has been an exciting journey where life-long friendships have been forged, and careers made and strengthened.