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Tomorrow’s interest rate decision could be an important factor in whether Crypto continues its rise of the last few months.
25 basis points rise?
How crypto markets will react to tomorrow’s interest rate decision will be interesting to see. After the varied collapses in the banking industry many are expecting Fed Chairman Jerome Powell to announce a smaller 25 basis points cut, or to even declare a pause in cuts until more data is forthcoming on the strength of the banks and the economy.
According to the CME FedWatch tool, the current market view is that there is a strong likelihood of a 25 basis points rate hike. The percentage probability of this is at 81.9%, with 18.1% expecting rates to stay as they are.
Many analysts suggest that the Fed shouldn’t hike rates at all, and some are even of the opinion that it needs to start cutting straight away in order to take the pressure off of the banks.
However, it may be the Fed’s view that the sheer amount of currency that it and some of the biggest banks have thrown at the problem, has given it the space it needs to get the interest rates up to its target.
The time is certainly going to come when the Fed will need to pivot and start cutting rates, and it will need to have built up a decent percentage of around 5% + in order to have enough points to cut with.
Banks have a better day
The banking industry is breathing again given that First Republic Bank is up around 30% on the day so far, after a brutal sell-off over the last few days, with a 47% tank in share price on Monday alone.
Credit Suisse has stopped haemorrhaging for the time being, and UBS, the Swiss bank that bought the beleaguered banking giant, is up 8%. Treasury Secretary Janet Yellen is expected to announce today that the federal government could intervene again if any other banks start to fail.
Crypto at critical level
So where does all this leave crypto?
Obviously, yet another rate raise can’t be good for crypto. Already suffering from the loss of 3 major banks that provided fiat on/off ramps, crypto could see a bit of a pull back on a 25 bp rise.
However, one of the reasons for the surge in the crypto market cap since the beginning of the year is the expectation that the Fed pivot is coming, even though it still could be some way off.
If the Fed should actually surprise the market and cut rates, albeit an extremely minimal possibility, bitcoin and crypto could really motor on upwards.
Disclaimer: 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.