(Bloomberg) – Bitcoin edged higher for a third day after being reassured by Federal Reserve Chairman Jerome Powell that the US economy was strong enough to withstand monetary policy tightening.
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The biggest cryptocurrency continued to mirror the US stock market, which swung between gains and losses following the Fed’s first interest rate hike since 2018. Investors expressed concern that a reduction pandemic-related stimulus measures reduce demand for risky assets.
“Rising rates will strangle stock markets. So if we see a mass exodus from risky assets, it will weigh on everything,” said Joel Kruger, strategist at crypto exchange LMAX Digital. He said a hawkish Fed could drive Bitcoin down to $20,000. “Further lows in stocks could contribute to a drop in crypto assets.”
Bitcoin gained around 3.5% to $40,800 as of 4:05 p.m. New York. The price had risen during Asian trading, only to erase gains after the Fed’s decision was announced. Other tokens such as Ethereum and Solana also gained. Bitcoin is down about 12% this year.
Policymakers led by Chairman Jerome Powell voted 8-1 to raise their key rate to a target range of 0.25% to 0.5%, the first increase since 2018, after two years of holding borrowing costs down close to zero to insulate the economy from the pandemic.
A sustained rally is unlikely as the Fed tightens throughout the year, billionaire cryptocurrency investor Michael Novogratz, who runs Galaxy Digital Holdings Ltd, said on Tuesday. during a television interview on Bloomberg Crypto. Bitcoin is likely to stay in the $30,000-$50,000 range in a rising interest rate environment, he said.
In the Fed’s so-called dot plot, officials’ median projection was for the benchmark rate to end in 2022 at around 1.9% – in line with traders’ bets but higher than expected – and then rise to around 2 .8% in 2023. They estimated a rate of 2.8% in 2024, the last year of the forecasts.
Bitcoin had spent the past few days mired in the tightest trading range since October 2020, a phenomenon that some market watchers attribute to long-term holders stepping in to buy whenever the token drops. Meanwhile, selling off by short-term investors prevented Bitcoin and other digital assets from generating sustainable gains.
“Whenever we see stock market relief, crypto tends to do well, especially lately,” said Marcus Sotiriou, an analyst at GlobalBlock, a London-based digital asset broker. “At the end of the day, the main driving force behind prices is macro, so I expect a fight for a sustainable upside.”
Read more: Bitcoin stuck in narrowest range since 2020 as markets turn
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