On Wednesday, the Federal Reserve announced it would hike interest rates by 25 basis points, forging ahead with its campaign to beat inflation despite the ongoing banking crisis, which started a few weeks ago.
Hours after the announcement, Bitcoin rose to $28,888 while Ethereum traded above $1,800. However, the surge did not last for long. As of this writing, BTC has shed 2% to $27,770, and ETH has dropped by 2.2% to $1 762 in the past 24 hours, according to data from CoinMarketCap.
At the start of this month, the central bank’s chair Jerome Powell suggested that the interest rates are likely to go higher than initially predicted. However, the recent troubles in the banking sector indicate that the Federal Reserve might slow down for now.
US Regulators Step in to Manage the Banking Crisis
The central bank, US Treasury, and Federal Deposit Insurance Corporation (FDIC) intervened last week to calm uncertainty, promising Silicon Valley Bank and Signature depositors access to their money. The Fed also started offering loans to help the banks weather any possible liquidity problems.
However, whether these measures are sufficient to prevent further crises in the banking sector remains unknown, considering that Credit Suisse entered a forced acquisition deal last Sunday, and there is still uncertainty surrounding First Republic Bank. The financial institution has seen its stock drop by 85% since March 1.
The Federal Reserves Set to Consider Other Measures for Managing Inflation
In Wednesday’s announcement, Powell said that due to the recent bank failures, the Federal Reserve no longer believes that ongoing rate hikes will be appropriate to flatten inflation. Instead, the central bank is looking to explore extra policy firming in the coming days.
Dean Kim, the William O’Neil + Co head of research, says any sign that the Federal Reserve will stop hiking interest rates is healthy for the crypto assets. He, however, notes that digital assets will suffer if the central bank remains resolute in pushing interest rates further.
Last year, the Federal Reserve hiked interest rates by 75 basis points four consecutive times. But the agency has slowed its pace since January, hiking rates by just 25 basis points.
The rate hikes made risk-on assets like cryptocurrencies unattractive, causing their prices to drop sharply. However, since banks started failing, investors appear to have renewed their interest in digital assets. As a result, Bitcoin and Ethereum have surged by 36% and 25%, respectively, since March 12.
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