Cryptocurrencies took a hit this week as Bitcoin continued its downward trend and investors anticipated the Federal Reserve’s next rate decision.
Bitcoin price saw a sharp reversal on Thursday after a data-heavy Wednesday. The cryptocurrency surged over 5% yesterday, adding about $3,000 to its value and approaching the $70,000 mark. This bullish trend was supported by US consumer prices moderating to a 3.3% growth in May, lower than the 3.4% expected by economists and below April's 3.4%.
Everything was going well until the Federal Reserve stepped in and spoiled the rally, causing Bitcoin to drop by 4% to $67,000.
Along with Bitcoin, cryptocurrencies and crypto-related stocks were broadly down. Ethereum fell 4.8% to $3,496.32, while Coinbase and MicroStrategy each dropped more than 2%.
Coinbase / MicroStrategy Stock Chart by TradingView
The Federal Reserve, which sets interest rates to maintain price stability and stable employment, held rates steady at 5.50%. This was expected and already reflected in prices. What unsettled the markets was the Fed’s forward-looking guidance, which included just one rate cut instead of the previously anticipated three.
In their statement, Fed policymakers described the progress on inflation as “modest.” Additionally, seven out of 19 officials project one rate cut this year, four see no cuts, and the remaining eight favor two rate cuts in 2024. The Fed has only four more meetings scheduled for the year.
Higher interest rates are generally unfavorable for risk assets like Bitcoin and the cryptocurrency market because they make borrowing more expensive and restrict the money supply. Meanwhile, stocks were soaring as investors digested the latest report from the US central bank. Both the S&P 500 and the Nasdaq Composite saw a massive surge.
