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Bitcoin and Gold: The Big Winners After the Fed Rate Hike

2 mins
Updated by Geraint Price
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In Brief

  • Bitcoin broke out above $28,000 yesterday after the Fed's 25 basis point increase.
  • Spot gold spike to levels not seen since 2020.
  • Analysts warn that Bitcoin is not out of the woods yet.
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Stronger expectations of a Fed rate hike pause saw Bitcoin (BTC) price break out of a narrow $28,000 range, while spot gold notched a new all-time high of $2,079.52 per ounce.

Bitcoin rose to $29,241 in early New York trading on Thursday as the Federal Reserve (Fed) announced a 25 basis point rate hike amid sentiments it could soon change its interest rate policy. Ethereum (ETH), Cardano (ADA), and Solana (SOL) also racked up gains.

Gold Beats Previous Record, and BTC Increased After Fed Hike

The Fed chairman, Jerome Powell, hinted that a pause could follow as the current rate records a 17-year-high. His language suggested that a U.S. recession is not unavoidable.

Federal Funds Rate Increase | Source: TradingEconomics
Federal Funds Rate Increase | Source: TradingEconomics

In the run-up to the announcement, spot gold per ounce spiked to a record $2,079.52. Gold futures also rose to $2,051.40. Saxo Bank analyst Ole Hansen said that the ongoing U.S. debt ceiling saga and “long-term sticky inflation” will see gold rise higher.

Gold Inflation Hedge Price
XAU/USD Daily Chart | Source: TradingView

At press time, the price of spot gold is around $2,043. 

On the other hand, the U.S. banking crisis, whose latest apparent victim is PacWest Bancorp, is the reason for renewed confidence in Bitcoin.

Edmond Goh from crypto broker B2C2 surmises:

“That rally we experienced after the banking crisis earlier this year seemed to be directly related to a flight for safety and self-custody of funds away from the dollar.”

Further price movements in gold and BTC, both considered inflation hedges, could follow the U.S. Personal Consumption Expenditure Index release on May 28. 

Bitcoin Market Depth Suffers From Low Inflows

Despite the bullishness as a consequence of the banking crisis, analysts argue that Bitcoin’s market depth has been thin after the implosion of FTX and Alameda drastically reduced BTC liquidity.

As a result, the asset has been unable to sustain $30,000-plus levels.

In a recent interview, Bitcoin investor and former FTX endorser Kevin O’Leary confirmed this. He noted that Bitcoin could not break out above $35,000 until U.S. regulators clear the path for institutional inflows.

Investors are also concerned about impending lawsuits against Binance, the Genesis bankruptcy, and an impending Digital Currency Group default.

DCG must either restructure or pay back a $630 million debt to Genesis by May 9 to May 11 to avoid a default.

According to Michael Safai of Dexterity Capital, which operates a high-frequency crypto trading desk:

“There still isn’t a lot of organic momentum behind cryptocurrencies. “The headline events that propel cryptocurrency prices past sticking points… are few and far between.” 

At press time, Bitcoin had fallen back to around $29,091.  

For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...