Crypto market contracts as the Fed's next interest rate decision looms

Quick Take

  • Interest rates are expected to rise by 75 basis points on Wednesday as the US Federal Reserve continues to fight inflation. 
  • Bitcoin, ether and most major cryptocurrencies traded down on Tuesday ahead of the announcement.  

Crypto markets traded down Tuesday ahead of tomorrow's US Federal Reserve interest rate announcement.  

The Fed is widely expected to increase the US federal funds rate by 75 basis points tomorrow – from 1.75% to 2.5% – bringing rates back to an effectively neutral level to combat rising inflation. While some commentators refuse to rule out the possibility of a 100 basis point increase, Pimco's North American Economist Tiffany Wilding told Bloomberg on Tuesday her firm believes it could be more. 

Cryptocurrencies were trading down in line with equities as traders weigh the potential impact of the rate hike. This comes after a rally last week which saw crypto’s global market cap retake $1 trillion — it has now surrendered these gains

Speaking to The Block on Tuesday, UBS head of FX strategy James Malcolm said the hike itself may not matter as much as the “signal of how much more is to come,” before adding that this will determine the reaction of risk assets like stocks and credit – which crypto is highly correlated with. 

Malcolm also questioned the attractiveness of digital assets now compared to conventional investments. FTX.US president Brett Harrison posed a similar question on Twitter, asking: “How will the expected rate hike tomorrow affect DeFi yields? Does DeFi lending become a less attractive interest vehicle in a higher interest rate environment?”   


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At the time of writing bitcoin was trading at $20,897, down 5.8% over the past 24 hours, according to CoinGecko data.

Meanwhile, ether shed 9.9% during the same period, trading at $1,372, as the global crypto market cap hovered around $995.  

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

About Author

Adam Morgan is a reporter covering cryptocurrency, financial markets, and economics – anything from price movements, earnings reports, and inflation to the U.S. Federal Reserve interest rate decisions and everything in between. Adam is based in London.