Bitcoin and Ethereum Follow Stock Market Upward After Fed Interest Rate Increase

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Bitcoin and Ethereum Follow Stock Market Upward After Fed Interest Rate Increase

Last Update: 2022-05-14

Interest rates are going up half a percentage point. But the cryptocurrency and stock markets are headed up by a lot more.

Bitcoin and Ethereum Follow Stock Market Upward After Fed Interest Rate Increase

Interest rates are going up half a percentage point. But the cryptocurrency and stock markets are headed up by a lot more.

The cryptocurrency market cap gained nearly 6% in 24 hours, with the top two coins—Bitcoin and Ethereum—both around that figure. The biggest gainer in the top 10 was Cardano's ADA, which tallied a 13% increase. BNB, XRP, Solana, and Luna all recorded gains of at least 5%.

The upward adjustment maps well to the returns on stocks within the Dow Jones Industrial Average and the tech-heavy Nasdaq, which gained 2.8% and 3.2% before the close of trading.

The biggest factor influencing the numbers—for both crypto and equities—is the Federal Reserve's decision today to raise interest rates by half a percentage point, which is the biggest increase since 2000.

When the Fed raises interest rates, it increases the cost for financial institutions to borrow, which has a domino effect all the way down to main street consumers' credit card rates. The overall idea is to slow down or reverse the level of inflation (which ticked up this year) by making money more expensive to come by.

If that's the case, why is the stock market having a banner day? And crypto along with it?

The quick answer is because many investors thought the interest rate hike, though larger, would be even larger. The Wall Street Journal quotes economist Alison Boxer as saying, "The main news from the press conference was that [Fed Chair] Powell pushed back on the 75 basis point hikes that markets had started to price in."

Moreover, while the Fed is prepared to raise rates further in the coming months, Powell indicated that a future 0.75 percentage point increase probably wouldn't be in the cards.

Source: https://decrypt.co/99472/bitcoin-ethereum-follow-stock-market-upward-after-fed-interest-rate-increase

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