Bitcoin Risks Losing $22,000 as Fed Warns Larger Interest Rates Could Lie Ahead
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Bitcoin Risks Losing $22,000 as Fed Warns Larger Interest Rates Could Lie Ahead

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1 year ago

There had been optimism that the Fed was slowing down its campaign of interest rate hikes, with policymakers opting for a 0.25 percentage point rise in their last two meetings.

Bitcoin Risks Losing $22,000 as Fed Warns Larger Interest Rates Could Lie Ahead

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Bitcoin is clinging on to $22,000 after Jerome Powell warned that large interest rate hikes could return — with the stock market also plunging into the red.

Speaking to the Senate Banking Committee, the Federal Reserve chairman warned that the fight against inflation is far from over — and there is "more work to do."

The U.S. economy has remained relatively strong despite the central bank dramatically increasing the cost of borrowing — and now, he believes that interest rates will peak at a higher level than previously thought.

But there are fears that the quest to bring inflation back down to the target level of 2% could spark a recession.

There had been optimism that the Fed was slowing down its campaign of interest rate hikes, with policymakers opting for a 0.25 percentage point rise in their last two meetings.

But analysts are now anticipating that a 0.5 percentage point rise — similar to those imposed last year — is likely when economists gather later this month.

Bitcoin wasn't alone in suffering a pullback following Powell's remarks, with the S&P 500 ending Wednesday's trading session down 1.5%. Meanwhile, the dollar surged.

Beyond the U.S. Consumer Price Index, which measures how the cost of everyday items has changed year on year and month on month, the market is keeping a very close eye on employment figures.

How Bitcoin is Faring

CoinMarketCap data shows that the world's biggest cryptocurrency has fallen by 1.5% over the past 24 hours — extending to a 7.11% loss over the past seven days.

Although Bitcoin has enjoyed a blistering rally since the start of 2023, momentum has cooled after repeated attempts to crack $25,000 were proven unsuccessful.

Additional headwinds, such as financial woes at Silvergate Bank, have also contributed to market jitters of late.

Powell was asked about the crypto sector during the first day of his testimony before politicians in Congress — with Chairman Sherrod Brown, a long-time critic and skeptic of digital assets, asking how the Fed was evaluating the risks posed by this sector.

The chairman said that he and his colleagues have been "active in this area," adding:

"We believe that innovation is very important over time to the economy — we don't want to stifle innovation, we don't want regulation to stifle innovation in a way that just favors incumbents. But like everyone else, we're watching what's been happening in the crypto space — and what we see is quite a lot of turmoil, we see fraud and we see a lack of transparency."

Powell said that the Fed has been working to ensure that regulated financial institutions are taking care in the way that they engage with the crypto industry — helping to limit the risk of contagion spreading to traditional markets.

These remarks will likely agitate some in the crypto space, who have accused agencies including the Securities and Exchange Commission of engaging in regulation through enforcement.

The likes of Coinbase CEO Brian Armstrong have led calls for a clear rule book that American crypto firms can follow. Many executives fear that, unless crystal-clear regulation is introduced, the U.S. could fall behind in this fast-moving industry — with businesses moving offshore and ultimately posing a much bigger risk to American consumers.

Wednesday could also shape up to be a turbulent day for Bitcoin, with Powell set to return for a second day of testimony.

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