How the Federal Reserve’s Interest Rate Hike Has Affected Bitcoin

According to reports, according to the latest data from the blockchain analysis company Glassnode, with the Federal Reserve raising interest rates by 25 basis points and the Federal Reserve Chairman releasing signals, risky assets such as Bitcoin have declined. Yesterday (March 22), a value of $350 million was withdrawn from the exchange, making it the third highest single day exchange outflow recorded this year.

About US $350 million BTC withdrew from the exchange yesterday, setting the third highest record since 2023

The Federal Reserve’s decision to raise interest rates by 25 basis points and Chair Jerome Powell’s announcement have caused a significant decline in the prices of risky assets like Bitcoin. According to the latest data from the blockchain analysis company, Glassnode, a value of $350 million was withdrawn from the exchange on March 22, which marks the third-highest single day exchange outflow recorded this year. This article will examine how the Federal Reserve’s decision has affected Bitcoin and the cryptocurrency market as a whole.

The Relationship between Federal Reserve, Interest Rates and Cryptocurrencies

The Federal Reserve’s policies have a significant impact on the economy, including the cryptocurrency market. Cryptocurrencies, including Bitcoin, are considered alternative investments, which means that investors may shift their investments from conventional assets to cryptocurrencies when interest rates are low. Conversely, when interest rates increase, investors may move their funds from cryptocurrencies to conventional investments that offer higher returns, leading to a decline in crypto prices.

The Impact of the Interest Rate Hike on Bitcoin’s Price

Following the news of the Fed’s interest rate hike, Bitcoin prices fell sharply on March 23, dropping from $57,000 to below $50,000 in less than 24 hours. The sharp correction also affected other cryptocurrencies, including Ethereum, which fell from $1,849 to $1,500, losing almost 20% of its value.
However, some analysts predict that the interest rate hike might not have a prolonged impact on Bitcoin’s price. They argue that the decline in Bitcoin’s price is a natural correction after a prolonged bull market, and the price may rebound once the market stabilizes.

Investors’ Response

The Federal Reserve’s decision to increase interest rates has caused a shift in investor sentiment from risky assets to conventional assets like stocks and bonds. Investors are now more likely to invest in stocks and bonds, which have higher returns than cryptocurrencies.
The outflow of $350 million from exchanges on March 22 suggests that investors were liquidating their Bitcoin holdings following the Federal Reserve’s announcement. The speed and size of the outflow indicate that investors were actively looking to sell their cryptocurrencies.

Future Outlook

The impact of the Federal Reserve’s decision on Bitcoin and the cryptocurrency market is likely to be temporary. If the market stabilizes, Bitcoin’s price may rebound to its previous highs. However, the interest rate hike has highlighted the relationship between Federal Reserve policy and the crypto market.
The future of cryptocurrencies is uncertain, and their prices are subject to a wide range of factors, including government regulations, market volatility, and investor sentiment. Despite the decline in Bitcoin’s price, some investors may still view cryptocurrencies as a viable asset for diversifying their investment portfolios.

FAQs

1. Can Federal Reserve’s future policies affect Bitcoin’s price?
Yes, Federal Reserve’s policies have a significant impact on Bitcoin’s price, and any decision by the Federal Reserve can cause volatility in the cryptocurrency market.
2. Will Bitcoin’s price rebound after the Federal Reserve’s interest rate hike?
The decline in Bitcoin’s price is a natural correction after a prolonged bull market, and the price may rebound once the market stabilizes.
3. Is cryptocurrency a viable asset for diversifying an investment portfolio?
Cryptocurrencies are considered alternative investments, and some investors may view them as a viable asset for diversifying their investment portfolios. However, they are subject to market volatility, which makes them riskier than conventional investments like stocks and bonds.