Why Bitcoin, Ethereum Is Rallying After Fed’s Interest Rate Hike?

Vignesh Karunanidhi
Source: Pixabay

Following the Fed’s interest rate hike announcement, the crypto market has made a positive rally, quite the opposite of what many expected. The Fed made an announcement recently that it hiked interest rates by 75 basis points to tackle soaring inflation. The inflation that touched 9.1% is considered to be the highest in the last 40 years.

The Fed’s decision to hike the interest rates is a follow-up of the soaring inflation and a possible upcoming recession.

The global crypto market, however, exhibited a positive outcome after the announcement. Following the announcement, Bitcoin, Ethereum, and the entire crypto market gained in the single and double digits.

What could be the possible reason for the rally?

The current market rally can be looked upon from different perspectives. The crypto market previously had a different reaction to the Fed’s interest hikes and other measures. Following such decisions, Bitcoin and the crypto market have tumbled since March.

The anticipated rate hike by the Fed was 100 points, but the market expectation for the interest rate hike was 75 points. From one perspective, the crypto market generally followed a macro trend where the expectations of the market were met and the crypto market headed into a positive rally. If interest rates were hiked by 100 points, the market would have plummeted and traded in the red.

While this was not the general anticipation, some traders even predicted the exact opposite. Griffin Ardern, a crypto trader from Blofin, stated that since the crypto market is still at a risk level and has not returned to a reasonable level, bitcoin could plummet by 10% following the Fed’s news.

As the crypto market completely flipped the trader’s ideology, other traders were of the opinion that since the fed hiked the interest rate by 75 points, crypto could portray a positive rally with ethereum outperforming others due to the soon-to-happen merge. This prediction is aligned with the market’s current performance as bitcoin and ethereum have gained 8.73% and 16.67%, respectively, following the news. Ethereum, as expected by many, has outperformed bitcoin with double-digit gains.

Traders who managed to scoop up during the dip have enjoyed reasonable gains. But despite all the theories and speculation, there is a chance that the rally could be a shortlived bull trap. As the crypto market also has the general behavior of flipping its stance, there is room for correction, and the chances of the market flipping in the next 24-48 hours is also a possibility.