Now might be a good time to buy USDT as bitcoin is expected to plunge below $38,000 and test $32,000 region in anticipation of the FED’s hawkish stance.
The Federal Reserve is set to raise interest rates for the first time in decades in order to combat inflation, but how will this affect bitcoin (BTC-USD) and other cryptocurrencies?
Cryptoassets continue to have a strong link with stocks, and traders expect bitcoin and other major cryptocurrencies to react negatively if the Fed decides to take a hawkish stance on interest rates at its monetary policy meeting on Wednesday.
Fiscal hawks have watched the expansion of the money supply and the subsequent rise in inflation with growing concern and are generally in favour of relatively higher interest rates.
For the 12 months ending March 2022, the rate of inflation in the United States was 8.5 percent. This is the highest level since December 1981, reinforcing the idea that a significant rate hike is required to keep inflation under control.
James Brian Bullard, the CEO of the Federal Reserve Bank of St. Louis, has even warned that a 75 basis point rate hike should not be ruled out as the US central bank tries to slow the economy just enough to keep inflation under control but not so much that it enters a recession.
Others, though, warn that a significant rate hike at this critical time might tip the US economy into recession and stifle economic growth as the country recovers from the effects of the financial crisis.
This is a view held by former Federal Reserve vice-chair Roger Ferguson who reacted to the rate hike anticipation by declaring on CNBC that “a recession at this stage is almost inevitable”.
Speaking to Yahoo Finance about the effects of a rate hike on the crypto-ecosystem, Nicholas Cawley, strategist at DailyFX, said the effect would be minimal. “It is very unlikely that a neutral Fed outcome of a 50 basis point rate hike will have any noticeable effect on the cryptocurrency market,” he said.
However, he added: “What may increase volatility is the post-decision press conference where Fed chair Jerome Powell will add some further detail about voting details and the recently announced quantitative tightening program.
“If Powell reveals any voting members made a case for a 75 basis point rise at this meeting, or if he suggests that, data dependant, that this may happen in the future, then the market would see this as a hawkish twist and risk-on asset markets, including cryptos, would likely come under renewed selling pressure.
“I think historically yes based on my feeling as someone that wants to buy Bitcoin. Fed says USD dollar is not going to be affected. It’s worth more. So I want to put it to work and Bitcoin seems to be the best bet in the long term.”
If there are signals of a potential 75 basis point rise, Mark Basa, the director at HOKK Finance, said bitcoin may react negatively, “but again historically when we think it’s going to dump, there’s a green Monday”.
Bitcoin’s mirroring of the sharp fluctuations of traditional markets is at odds with its promise of becoming an immutable and decentralized hedge against the institutional financial system.
Joe Morgan of Bitfinix said: “A ramp-up in Fed interest rates has been well-telegraphed in the bond market and is largely in the price of most risk assets.
“Bitcoin has been viewed more recently as belonging to the same category, however, its longer-term valuation is also underpinned by its scarcity and its potential to offer a fast and cheap peer-to-peer payments platform.”
