Bitcoin Braces For Biggest Federal Rate Increase In 28 Years

As the crypto industry braces for another announced rate increase from the Fed today at 2pm ET, expected to be a jump to 75 basis point increase (bps) following May’s record year-on-year inflation jump of 8.6%, the highest in four decades, bitcoin is close to falling below $20,000 for the first time since December 2020.

If Fed Chairman Jerome Powell announces a 75 bps jump, it would increase the targeted federal funds rate to (1.5-1.75%) and will come after a 25bps increase in March and 50bps boost in May.

During European hours the asset traded as low as $20,180 on Bitstamp before climbing back up to 21,086 as of 8:01 ET.

The asset is down 27% over the past five days in the midst of a bearish trend that has seen it drop 55% year to date and produce red candles over 10 of the last 11 weeks.

Additional pain could be in the offing today as well. While bitcoin was billed as an inflationary hedge in the past as a result of its fixed supply, akin to a form of digital gold, the asset has traded in tight correlation with tech stocks and other risk-on assets that become less competitive in a tightening rate environment.

Furthermore, rumors are swirling that Singapore-based crypto hedge fund Three Arrows Capital is facing $400 million in liquidations. This comes on the back of multi-billion dollar crypto bank Celsius freezing customer withdrawals and growing concerns about broader insolvency in the market.

There is a possibility that the asset could produce a green daily candle today when the announcement is made. In a bit of irony, the two prior announcements on March 16th and May 4th coincided with positive days for bitcoin. There are multiple reasons for this trend, with one prominent explanation being the belief that because these increases were well-telegraphed they were already priced into the asset. Using that logic, the fact that the rate increases were not higher than the expected 25 and 50 bps respectively, the market reacted well initially, However, the asset turned negative the next day both times.

Looking more broadly at the market, among the top 10 assets by market capitalization ether is the biggest loser, dropping 7.43% over the past 24 hours. The two assets with the smallest losses are cardano and solana, which have only fallen -0.63 and 2.18% respectively. These assets are also outperforming ether over the past five days

This observation may seem unusual to market observers, as traders traditionally roll out of riskier assets and altcoins (any token that is not bitcoin or ether), but a confidential source with close proximity to institutional traders in particular told Forbes that unlike previous bearish turns, investors are actually shunning ethereum for altcoins, naming cardano and solana as two favorites.