Inflation in the United States reached a multi-decade in June, surpassing expectations. According to Bureau of Labour Statistics data, the Consumer Price Index (inflation) increased to 9.1% year on year through June. The intensity of this consumer price data may make it possible for Federal Reserve policymakers to stick to their intentions to aggressively raise the interest rates, affecting the broader cost of borrowing.
The central bank raised the benchmark interest rate by 75 basis points in June, the most significant increase in 28 years. This action came after the Federal Reserve raised the interest rate by 25 basis points in March. The inflation rate rose 0.1% month on month from July, when it remained static, which many politicians and economists regarded as an outstanding achievement.
Why crypto investors should pay attention to the Federal Reserve’s rate hike decisions
Investors in cryptocurrencies could be in for another roller coaster ride in the weeks ahead if the last four Federal Reserve meetings are any indication. According to historical price charts, the value of Bitcoin dropped by at least 10% after each of the three Federal Reserve meetings in March, May, and June. The crypto market has shown a strong negative correlation with Federal Reserve rate hikes, even though the drop following the July meeting was less severe.
While past performance cannot predict how markets will respond in the future, particularly in the unpredictable and volatile crypto market, investors should anticipate fluctuation next week after the Federal Reserve’s following anticipated rate hike news.
What August’s inflation figures mean for crypto prices
Bitcoin and Ethereum prices had been rising before the publication of August inflation figures. Bitcoin fell below $19,000 last week, the lowest point since June, but over $19,000 at the time of this writing. Since the July Federal Reserve meeting, neither of the two largest cryptocurrencies has seen significant shifts. However, a series of small rallies for each one has offered investors hope that they may be on the mend.
The Federal Reserve’s hike in interest rates in June was one of several variables that jolted the cryptocurrency market, which was already in a severe downturn compared to 2021, with price levels plummeting all around. Since the highs of last year’s bull market, Ethereum and Bitcoin have dropped more than 70%.
The correlation between cryptocurrency and equities markets
Aggressive interest rate increases are unsuitable for crypto price levels, and experts believe the volatility will persist soon. Since 2022, speculative investments such as equities and cryptocurrencies have been strongly correlated. Both markets have been moving in lockstep this year, with investors fleeing in response to increasing interest rates, soaring inflation, and the possibility of a recession. If the stock market falls due to another rate increase, the cryptocurrency market will probably fall as well.
Any changes in the Federal Reserve’s decisions or other macroeconomic indicators should not significantly impact your long-term crypto financial strategy. It serves as a reminder to investors that crypto investments carry additional volatility and risk, particularly during periods of economic and political instability. Despite the recent uptick in sentiment, the crypto market is still well below its all-time highs, with Bitcoin and Ethereum down more than 70% since last November. Provided the cryptocurrency’s history of uncertainty, price levels are just as likely to fall as they are to rise, and predicting where they will go next is extremely difficult.
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