Crypto is bracing itself for another massive interest rate hike as the Federal Reserve (Fed) attempts to grapple with inflation that remains stubbornly above 8%.
Today marks the start of a two-day meeting between bankers, with the U.S. central bank expected to deliver another minimum 75 basis point hike (0.75%) on interest rates. Reports from some quarters indicate that the hike could even be as high as 100 points.
75 points or more
According to social media influencer Ben Armstrong, a 100 point basis point hike remains unlikely.
“Every time we have had a standard expectation for Fed Rate Hike and possible higher rate hike, it’s been the standard one,” said Armstrong on Tuesday. “We haven’t had a surprising rate hike yet. Doesn’t mean it will stay that way, but that’s what we have seen so far. Gonna be 75 [basis points] not 100.”
While the Fed has so far avoided a 100 point hike, it has instituted a number of ever-increasing interest rate hikes this year. In March, it announced a 25 point increase, in May that grew to 50 points. June and July both saw rate increases of 75 points.
History might also therefore indicate that the next increase could be even larger than what has come before. A rise larger than expected could have a significant chilling effect on the market.
Bitcoin battles on
As the Fed grapples with inflation through its policy of fiscal tightening, Bitcoin and the wider crypto market continues to struggle.
As Be[In]Crypto reported on Monday, the price of Bitcoin dropped below $19,000 this week. The market cap for the entire cryptocurrency sector fell to $950 billion. Both have recovered only slightly, with Bitcoin bouncing just above the $19,200 marker. The market cap is also up very slightly to $976 billion.
Meanwhile, Ethereum’s Merge turned out to be a “sell the news” event with the asset appreciating slightly prior to its proof-of-stake switch, and falling thereafter. At its current value of $1,350, it is down 20.7% in the past seven days.
Traders use the aphorism “buy the rumor, sell the news” to refer to a process by which the market prices in an event before it actually happens. Therefore, any upward Ethereum price pressure occurred prior to the Merge and not after.
Similarly, any negative price pressure from an interest rate hike could also be priced in. With news that U.S. inflation was up “just an inch,” as President Biden explained on Monday, traders may have already priced in the next wave of fiscal tightening from the Fed.
It’s a theory that crypto investor Lark Davis ascribes to. On Tuesday, Davis said, “if the FED calls in just a 75 [basis point] rate hike it would set markets up for a nice little rally before next month’s inevitable inflation data release drama!”
Such is the power of reading crypto tea leaves, so that price changes occur before the event happens until sometimes they don’t. All eyes are now on the Fed.