FED Rate Hike Plans Leave Bitcoin (BTC) and the Broader Market Under Pressure

Bob Mason
Updated: Jan 6, 2022, 13:37 UTC

Bitcoin and the broader market suffered at the hands of the FED. A FED battle to curb inflation may well further impact the crypto market near-term.

Golden bitcoin coin on keyboard

Bitcoin (BTC) and the broader crypto market saw deep red on Wednesday. Late in the day, the FED released its FOMC meeting minutes from the 14th-15th December meeting.

Crypto investors looking to be free of central bank action will have been disappointed by the market reaction to the minutes.

Market reaction on Wednesday also highlights the fact that cheap money has been funding the crypto markets. In November, Bitcoin (BTC) had struck an ATH $68,958 at a time when the FED’s Funds Rate sat at just 0.25%.

The FOMC Meeting Minutes and Outlook on Interest Rates

On Wednesday, the FOMC meeting minutes caught the global financial markets by surprise. Through much of 2021, FED Chair Powell had reassured the markets of the status quo on interest rates for the foreseeable future. A sharp pickup in inflationary pressure, however, muddied the waters.

After having shifted from a view that inflation was transitory, FOMC economic projections pointed to the need for a tightening of monetary policy. Cheap money has not only been funding the crypto markets, but also the global equity markets.

Key for the crypto market was the prospects of earlier and faster rate hikes than had previously been anticipated.

The Market Reaction to Interest Rate Outlook

On Wednesday, the NASDAQ slid by 3.34% in response to the more hawkish than expected minutes. The Dow and the S&P500 also saw red, with losses of 1.07% and 1.94% respectively.

Bitcoin Price Action

For Bitcoin (BTC) and the broader market, market reaction to the minutes was evident. In response to the meeting minutes and pullback in the U.S equity markets, Bitcoin (BTC) fell by 2.7% in the hour following the release.

The pullback continued, with Bitcoin (BTC) falling to a day low of $42,505 before finding support. Bitcoin (BTC) ended the day down by 5.23% at $43,433.

Things were not much better elsewhere. Litecoin (LTC) slid by 7.59%, with Ethereum (ETH) falling by 6.53%.

At the time of writing, Bitcoin (BTC) was down by 1.08% to $42,965. A move back through Wednesday’s high $47,067 would be needed to support a near-term return to $50,000 levels.

Support at Wednesday’s low $42,511 will be key. A fall through to sub-$42,500 would bring sub-$40,000 levels into play for the first time since September 2021.

Through this morning, Bitcoin (BTC) has managed to recover from an early low of $42,600, suggesting strong support at around the $42,500 level.

BTCUSD 060122 Daily Chart

Looking across to the U.S Futures, the Dow Mini was up 14 points, while the S&P500 and the NASDAQ were pointing to bearish starts. For the day ahead, expect any major moves across the U.S majors and any FOMC member chatter to further influence.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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