Crypto Today: How Expectations Are Influencing Bitcoin And Ethereum Prices

The crypto market responded quickly — and predictably — to the latest Fed rate increase Wednesday afternoon.

Bitcoin And Ethereum Feeling The Heat

Both bitcoin and ethereum’s prices dipped immediately. This happened following the Fed’s announcement that it will increase interest rates by another 75 basis points. The crypto market was already in the midst of a rough week. On Monday, both tokens had fallen more than 10% over the last week.

Crypto has been closely trailing macroeconomic events. Furthermore, over the last year, the market has consistently reacted negatively to rate hikes. In a matter of minutes on Wednesday, bitcoin’s price dropped from roughly $19,500 to $18,900. Ethereum saw a more modest price drop, falling more than $50. Both drops signify a more than 3% drop after the Fed made its announcement.

Bitcoin and Ethereum rebounded immediately following the drops, but their prices eventually plummeted again late Wednesday afternoon. Bitcoin fell nearly to $18,000 and Ethereum to nearly $1,200. Since then, prices for both tokens haven’t changed much. Bitcoin is currently hovering around $19,000 and Ethereum still hovering around the $1,200 threshold.

Recent volatility notwithstanding, price drops following the Fed’s rate increase were relatively small compared to drops in recent months. So what gives? It has to do with the market’s expectations, according to experts. 

Here’s What Investors – including eToro traders –  Need To Know About What’s Happening With Crypto Today.

How Market Expectations are Driving Crypto Prices Right Now

Experts anticipated that the Fed would raise rates by 75 basis points. Because those predictions came true, the crypto market didn’t see extreme volatility in its prices today. This is in contrast to July when the Fed announced its first 75 basis point hike (which was significant).

The Fed has remained consistent in its message throughout this year. Fed Chairman Jerome Powell shared hawkish sentiments — indicating more aggressive action might be taken in the future — toward inflation and further rate increases in late August. As such, Wednesday’s news was perfectly in line with expectations, and thus the crypto market didn’t experience a big shake up, experts say.

“It’s a bit of a nothing burger,” said Andy Long, CEO of White Rock Management, a digital asset mining company headquartered in Switzerland. “There was a 10-20% chance of something a bit more hawkish, but that didn’t happen. Everybody expected 75 [basis points], and so you can see this afternoon that downward pressure relaxing a bit.”

Long says we’ll continue to see short-term impact on crypto prices from Fed rate decisions and economic news, but that expectations are already largely priced in before news drops. 

Economic News Regarding Crypto Thus Far

Economic news regarding inflation has been particularly important for the crypto market, since that’s what’s driving the Fed to hike rates in the US. As such, crypto has been reacting negatively to inflation reports as of late. For example, crypto prices fell after the U.S. Bureau of Labor Statistics released August inflation data. This saw bitcoin prices dropping 4% and ethereum 7% over the following 24 hours at that time.

This marks the Fed’s fifth consecutive rate hike. If inflation doesn’t alleviate, it’s possible the Fed will become more aggressive and drive up rates by a higher number during their final two meetings of the year. That could spell out even steeper price drops for crypto, especially if they’re out of line with market expectations.

Just how low crypto prices can go this year, though, is still up for debate. Some experts contend that bitcoin is still poised for a massive drop off into the $10,000 area this year.

Long doesn’t think we’ll see bitcoin’s price hit 4-digits again, but dips to around $13,000 may not be out of the question.