On 16th March 2022, the FOMC announced the first increase in interest rate since 2018. While experts expected the interest rate changes to cause bitcoin price drops, Santiment reports that there was no negative impact on BTC. Analysts have differing opinions on why the news has not vastly shaken Crypto.
FOMC Raises Interest Rates After Over 3 Years
Yesterday, Wednesday 16th, the Federal Reserve issued a statement announcing a raise in interests. The Federal Open Market Committee(FOMC) is a Feds body charged with controlling open market operations. Its primary tasks are lowering or raising rates to control the money supply.
After over three years, since December 2018, the FOMC announced some changes within the interest rates. According to the FOMC statement, they raised their federal fund’s target to the 0.25% to 0.5% range.
FOMC noted that the high inflation rates affecting the USD were part of the main reason for the interest rate increase. FOMC highlighted that inflation has remained elevated due to the pandemic and high energy costs. Moreover, the uncertainties brought by the invasion of Ukraine by Russia also warranted the changes in interest policy.
The FOMC statement reads, “The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”
Bitcoin and Crypto not Vastly Affected
Of course, analysts expected that the rise in interest rates would affect all financial markets, including Crypto. Some expected that Bitcoin and altcoins would dump prices after the announcement. Initially, when FOMC released its statement, Bitcoin was trading at $40400. A few hours after the announcement, bitcoin prices dropped to about $39849.
Santiment reported that initially, the news by FOMC led to “a price bounce & #altcoin surge.” But, about a day after the announcement, Bitcoin has recovered and is trading at just about $40900, a 0.9% increase.
Altcoins were not vastly affected by the announcement. Today, most other altcoins continued with bullish statements. Ethereum, BNB, Cardano, Solana are all up by 2.8%, 1.5%, 3.2%, and 3.5%, respectively. This was almost the case in the entire crypto market in the past 24 hours.
The interest rate changes were expected to affect the markets since assets would need to adjust to 25 basis points(bps). However, BTC and many other crypto assets did not dump drastically because the 25bps was already part of their prices.
Often, markets shocks are caused by significant, unpredictable events. However, since investors expected the interest rate changes, the crypto markets dealt with the expected changes.
Analysts’ Opinions on Rate Rise Impact on BTC
Analysts have conflicting opinions on the impact of the news on Bitcoin’s performance. Lisa Loud, the CEO of fluid Defi, mentioned that while the interest rate rise would affect bitcoin, several factors will mitigate the impact.
First, she noted that the amount of Bitcoin in the US has been reducing due to regulatory issues. Moreover, there is increasing demand for bitcoin as people find ways to move money out of sanctioned areas. Hence, changes in US policies will have a minimal impact on bitcoin and many altcoins.
Other analysts noted that the recent rate rises would reduce bitcoin adoption in 2022. Essentially, people will have less money and choose not to spend on digital assets. But, crypto enthusiasts think that the rate rises could drive more institutional adoption of Crypto.