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Indeed, the eagerly awaited interest rate decision has now been announced, and a long marathon has begun for cryptocurrencies. We have seen Bitcoin lose significant value due to the pressure of the interest rate decision to be announced in about 10 days. So, what awaits cryptocurrency investors after the announced decision? We are discussing the behind-the-scenes of the decision and expectations for the future.
Fed’s July Interest Rate Decision
The eagerly anticipated interest rate decision was just announced at 21:00. About 1 hour before the meeting, FedWatch gave a 96.5% probability for a 25bp increase. 3.5% of participants believed that the Fed would increase by 50bp at once, thereby concluding the interest rate adventure. Amid a market prepared for new interest rate increases, it was expected that the interest rate ceiling would be declared amid the banking bankruptcy in March.
Data throughout the month confirmed that the decrease in inflation continues to slow down. Wage increases and employment data were not at the level the Fed wanted. We need to understand this clearly. The Fed sees excessive tightening as a riskier thing than early easing. Accordingly, the Fed intends to act, taking the risk of excessive tightening cautiously.
As expected, the Fed raised interest rates by 25bp. This decision was already expected in light of the incoming data.
Impact on Cryptocurrencies
Just as important as the interest rate decision will be the announcements made by Powell in about half an hour. The Fed will likely signal another 25bp increase, and it is expected that the Fed Chairman will say more. If Powell adopts an excessively hawkish stance, we may see Bitcoin and others experience sharp declines in the coming minutes.
On the other hand, there were high entries into spot and derivative markets this evening. Considering the massive short positions accumulated, crypto investors may see high volatility in both directions. While the decision supports the downturn, the market, which has been pricing the worst for days, may now start to return.
