Following the Federal Reserve’s latest monetary policy decision on Thursday, investors flocked to riskier assets, driving up the price of Bitcoin and other cryptocurrencies.
Bitcoin’s value rose $8,000, or 8%, the previous day to $23,000. Following the Fed’s monetary policy announcement on Wednesday afternoon, Bitcoin slowly rose from a low of around $18,000 in June to a high of nearly $24,000 most recently, before declining to again as the markets prepared for this volatile week.
However, the near-term situation for Bitcoin is still somewhat uncertain, according to Bitbank analyst Yuya Hasegawa.
Right now, digital assets seem almost exclusively dependent on macro factors. Even if crypto-specific circumstances (such as the collapse of hedge fund Three Arrows Capital or a regulatory investigation into the exchange Coinbase Global have affected the price), the dominant element remains the vital link between cryptocurrencies and shares.
Cryptocurrencies such as Bitcoin and Ether should be traded separately from traditional financial markets. Yet in practice they have significant associations with stocks, especially tech companies, and have trailed the S500 and Nasdaq in a selloff this year. Additionally, the market value of cryptocurrencies has been declining.
Inflation at its highest in decades and the reaction of the Federal Reserve are now the most influential macroeconomic forces. On Wednesday, the Federal Reserve announced that it would raise interest rates by 75 basis points, or 0.75 percentage points.
Stocks and cryptocurrencies rose on the Fed’s pledge to fight inflation and signs that rate hikes would slow soon.
The possibility of a recession remains. This is the fourth interest rate hike this year and the second since June 1994. An interest rate hike is in the works at the Federal Reserve and falling economic demand has raised fears that it will triggers a recession in the United States. For some time, this doubt will remain a cloud over the digital asset market.
All markets flounder. Chris Terry, an executive at lending platform SmartFi, wrote in a letter that unless the economy “recovers, not much will happen.” We expect Bitcoin to maintain its current trading range of $20,000 +/- 15%. Indeed, this shouldn’t be shocking news. The market may remain stagnant for some time.
There are other indicators in the crypto futures market that the current Bitcoin boom may be cooling off. For example, over 90% of all cryptocurrency transactions are derivatives transactions, such as futures and options based on digital tokens. According to cryptocurrency market statistics provider CryptoCompare, in June the number of derivatives traded on exchanges was $2.8 trillion, while the number of notes traded was $1.4 trillion. .
An adverse change in options is just one of the warning indicators that this crypto surge may not last. Luke Farrell, a trader at crypto market maker GSR, said the techniques had “swung,” making it harder for cryptocurrency prices to continue higher on short hedges.
The term “short cover” is the process by which traders who bet that the price of an asset would fall must buy back support to complete their short position, thereby increasing the market’s demand for help.
For the remainder of the summer, “my estimate is consolidation between…$19,000 to $23,000 for Bitcoin,” Farrell added.
In addition to Bitcoin’s price growth, the price of Ether (the second largest cryptocurrency, at ETHUSD +1.29%) also increased by 12%, reaching $1,650. Altcoins, or additional cryptocurrencies, such as Solana and Cardano, also jumped, each by 9 and 7%, respectively. Memecoins, created as online pranks, have also increased in value; Dogecoin (DOGEUSD) rose 1.05%, while Shiba Inu (MINU) rose 7%.