Cryptocurrencies fall as investors weigh the Fed’s latest rate decision, bitcoin slides toward $25,000

Cryptocurrencies fell on Wednesday as investors weighed the Federal Reserve’s latest policy decision.

Bitcoin slipped 4.8% to $26,895.88, according to Coin Metrics. Ether fell 4.1% to $1,726.58, after a big move higher on Tuesday.

The Fed issued a quarter-point rate hike at the end of its latest monetary policy meeting, expressing its caution over the recent banking crisis and implying that rate hikes are nearing an end. Fed forecasts call for just one more rate hike this year.

A rise of 25 basis points was widely expected. The decision makes it the ninth straight rate hike and second straight quarter-point hike after a string of larger rate hikes throughout 2022.

“The hope was that the long-awaited dovish tone from the Fed would finally arrive amid this banking crisis. Those hopes were dashed by Powell’s comments that rate hikes could continue as long as things continue to stabilize, weakening some of the momentum that has led crypto’s rise over the past few days,” said Michael Safai of the crypto trading firm Dexterity Capital.

“Much of what drove the recent Bitcoin rally — the ongoing weakness in the banking system and the potential for central bank balance sheet expansion — has not entirely gone away,” he added. “This could provide a floor for cryptocurrencies once the broader institutional reaction to the Fed settles down.”

Still, Fed Chair Jerome Powell’s comments in the post-meeting press conference were more hawkish than market expectations, although according to Michael Rinko, Venture, he “threw cold water on fears of a credit crunch and deflation as a result of the banking crisis.” Partners at AscendEx.

Remarks by US Treasury Secretary Janet Yellen that she was not considering raising the FDIC’s insurance limit to $250,000 also scared investors, he added.

Bitcoin’s volatility has returned this month, sending the cryptocurrency’s price up more than 20% for the month and taking year-to-date gains to more than 70%. At the same time, its correlation with stocks has broken after trading in step with stocks for about two years. Nonetheless, macroeconomic factors are still the biggest drivers of bitcoin price.

“I think a lot of traders will be drained by Bitcoin’s pullback towards $25,000 as markets were really hoping to surpass the symbolic $30,000 mark,” Safai said. “This will likely weaken some of the momentum behind crypto prices in the near-term, but that could easily change if the banking sector continues to show weakness.”

Chart analysts have been watching $25,200 as a key level for Bitcoin, looking for two consecutive weekly closes above this level to determine the strength of the recent rally.

“Right now, volatility is picking up again, bringing much-needed volume and energy to the markets,” he added.