Bitcoin Up 6% on Fed Rate Announcement

Crypto prices rose today in spite of a large rate hike.

Cryptocurrency prices increased today following a Federal Reserve interest rate rise of 0.50%. The rate hike was the biggest since 2000, but the market was ready for worse news. There were fears of a 0.75% rate rise, which did not come to fruition. As a result, the crypto and stock market rallied slightly.

Crypto market leader Bitcoin (BTC) rose over 6% in the hour after the much-anticipated announcement, according to CoinMarketCap data. As is often the case, altcoins followed suit. At time of writing, the total crypto market cap is up over 5% to over $1.8 trillion in the past 24 hours.

Here's how other top cryptocurrencies performed immediately after the announcement:

• Ethereum (ETH): Increased by 4%
• Cardano (ADA): Increased by 5%
• Solana (SOL): Increased by 5%
• Binance Coin (BNB): Increased by 4%

It could have been worse

The Fed's economic tightening measures are one of several reasons for the stagnant or falling crypto prices we've seen in recent months. A hawkish Federal Reserve means there's less interest in high-risk assets like crypto.

The issue is that the Fed needs to take action to curb soaring inflation. Inflation reached 8.5% in March, the highest it's been in 40 years. Federal Reserve Chair Jerome Powell told the press, "Inflation is much too high and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down."

Crypto prices had trended downward in the week prior to the meeting. One reason was fear over the possibility of a 0.75% rise either now or in the near future. The other was concern that aggressive anti-inflationary moves could lead to a recession, a risk Powell had hinted at in April.

Powell reassured attendees that the former was unlikely in the coming months. He was also more optimistic about the possibility of a so-called "soft landing" for the economy. A soft landing would involve reducing inflation without triggering an economic crisis. He pointed to increased household spending and business investment, as well as a tight labor market. In the immediate aftermath, the market responded well to Powell's words.

What it means for investors

Cryptocurrency prices are volatile at the best of times. And as we face fears of a recession and the continuing Russia-Ukraine conflict, these are far from the best of times. Today's price increase is reassuring, but we're not out of the woods yet. There's still a lot of uncertainty, and we could be in for a prolonged period of low prices.

It is now almost six months since Bitcoin hit its all-time high of over $68,000. It's understandable that crypto investors are hoping for similar rallies to those we witnessed in 2021. Last year, even dramatic price dips seemed to precede equally dramatic rallies. But Powell's words are a good reminder that we're in a very different economic climate now, and likely will be for some time to come.

Crypto prices may eventually recover. Some crypto analysts predict Bitcoin will eventually reach $100,000 or even $1 million. But investing is a marathon not a race, and it could take time for prices to return to last year's highs. This is why it's important to only invest money you can afford to lose and ensure crypto only makes up a small percentage of your overall portfolio. Given the economic backdrop, it's unlikely a 6% increase is the start of a huge rally. For buy-and-hold investors, the best course of action is to knuckle down and focus on crypto's long-term potential.