1. What is Fed? What is its role?
2. What are the reasons behind Fed's decisions on interest rates?
3. Fed's impacts on the crypto market
According to the Fed's official website, Fed - The Federal Reserve System is the central bank of the United States. The Fed was founded in 1913 and performed five general functions to promote the effective operation of the U.S. economy, more generally, the public interest.
Usually, the Fed will have eight annual meetings to plan and adjust monetary policy.
The Fed will raise interest rates if inflation is high. Due to the increase in interest rates, the amount of money lent from banks decreases as the demand for business loans is lower, making prices more expensive and reducing consumption needs and shopping demand. As a result, the prices of goods and services go down, helping to curb inflation.
In contrast, in the case of negative inflation, when consumption needs are lower, and there is a sign of economic recession, the Fed will have to consider lowering interest rates to stimulate economic activities; this is because lower interest rates encourage enterprises to borrow to expand production and people to borrow for consumption, promoting economic growth.
The recent Fed rate hikes are not positive news for the price of cryptocurrencies, and experts say there may be more extensive changes soon.
With the rising inflation, rising interest rates and a potential recession, investors are highly concerned as a new rate hike could cause the price of cryptocurrencies to plummet or vice versa.
The Fed's moves to cool down the economy and slow inflation are pushing interest rates to their highest levels in the past decade since 2008. The consequences of each new rate hike are fluctuations in the cryptocurrency and stock markets, leaving investors in a constant state of uncertainty.
Let's look at some of the Fed's activities from 2022 and their impact on the crypto market.
During the meeting in May, when the Fed announced that 0.5 percentage points would only increase the interest rate, Bitcoin price reversed sharply, at one point reaching nearly $40,000. But then it corrected and plummeted on May 7th due to the negative impact of the massive sell-off of U.S. technology stocks.
The Fed's rate hike in June 2022 impacted the crypto market, which was already in "winter" mode with widespread price declines. For example, Bitcoin and Ethereum prices have dropped more than 70% in June since the peak of the 2021 bull run.
Bitcoin price fell to the lowest level after the Fed's two-day meeting on June 14th and 15th, 2022. The Fed raised interest rates by 0.75%
Bitcoin price fell ahead of the September Fed meeting as investors were afraid that the Fed might soon signal a slowdown in bond buying.
So what about the near future of cryptocurrencies? No one can confirm anything yet, but Joshua Fernando, a cryptocurrency expert and CEO of eCarbon, a blockchain technology company focused on carbon emissions allowances, commented: "If the Fed signals strong rate hikes through 2023, expect more pain in the markets," Fernando says."
However, investors should not be too alarmed by the interest rate hikes and declines; keep a close eye on the market to have an appropriate investment direction so you can still earn extra income even in the downtrend season!
