Digital currency price growth; interest rates increased but not more than the market expected

Cryptocurrency investors had previously expected a 0.75 percentage point increase in interest rates from the Federal Reserve Bank of America. Therefore, the recent increase in interest rates did not surprise them and this caused the price of digital currencies to increase.

To Report Bitcoin rose 2 percent in early morning trading on Wednesday, CoinDesk said, after the U.S. Federal Reserve raised interest rates by 0.75 percentage points, bringing the increase to 10 percent. Most of the news related to digital currencies and traditional financial markets on Wednesday revolved around the increase in interest rates, the amount of which was in line with market participants’ expectations.

A dot plot of the Federal Reserve is a chart that records each Fed official’s forecast of the central bank’s key short-term interest rate. This graph shows that by the end of this year, the interest rate will increase to 3.5%. This year, the Federal Reserve has three more meetings in September (September), November (November) and December (December), in which interest rates will be decided.

In the US stock market, the S&P 500 and Nasdaq indices, which are mostly based on shares of technology companies, increased by 1.34% and 2.44%, respectively. The reason for this is that investors were satisfied with the amount of interest rate hike. The Dow Jones Industrial Average also increased by less than 0.5%.

The price of Ethereum also increased by about 16% due to the interest rate. Meanwhile, the shadow fork (shadow fork) or the update of the Ethereum blockchain test software was successfully completed two days ahead of schedule. This test brings Ethereum one step closer to its long-awaited transition from a proof-of-work network to an eco-friendly proof-of-stake network.

Altcoins were also in the green on Wednesday. The price of Paligan, which decreased by 11% yesterday, has increased by 9.3% and the price of Solana by 5%.

The expected increase in interest rates caused the price of Bitcoin to rise

In Wednesday’s trading, the price of Bitcoin returned to its previous level once again after the Federal Reserve announced an interest rate hike in line with expectations.

Considering the 0.75% interest rate increase, the statements of the US central bank officials on May 4 (May 14) about the size of the balance sheet are noteworthy.

At that time, the Federal Reserve said:

We intend to reduce the size of our balance sheet in a predictable manner over time and allow the principal of our debt securities to be reduced from our balance sheet by a monthly cap.

The monthly ceiling for treasury bonds was set at $30 billion and for mortgage-backed securities at $17.5 billion. One of the interpretations that can be had from the Federal Reserve’s May statement was that the Federal Reserve’s balance sheet will decrease by 47.5 billion dollars every month; But the chart below shows that this interpretation was not correct and the size of the balance sheet remained at around 8.9 trillion dollars.

Of course, it should be noted that this amount of 47.5 billion dollars is a ceiling and not a target, and therefore the reduction of the size of the balance sheet occurs when the maturity date of the treasury bonds reaches and subsequently they are removed from the balance sheet. Investors also pay attention to the statements of Jerome Powell, the head of the US Federal Reserve in this regard:

Our balance sheet decisions are based on the two goals of maximizing employment and price stability. In this regard, we are ready to adjust the details of our approaches according to the economic and financial developments.

It is true that the Federal Reserve pursues goals such as price stability and maximizing employment; But the speed and manner of achieving these goals is determined by the decisions of this institution.

Federal Reserve policies affect high-risk assets such as stocks and digital currencies. As shown in the chart below, the correlation between S&P 500, Nasdaq and Bitcoin price is still weak.

From the aspect of technical analysis, the increase in the price of Bitcoin along with the strong increase in the RSI index to 56 indicates the growth of the price acceleration rate.

Also read: What is the RSI indicator and how to use it in technical analysis?