Fed Market Reaction: Stock Correlation Weighs More on Bitcoin Than Interest Rates

Bitcoin and equities slightly rally on news that Fed rate hikes may be coming in the coming months

article-image

Blockworks exclusive art by Axel Rangel

share

key takeaways

  • Markets marginally rebound on signals that rate hikes may come in March
  • If bitcoin’s correlation to equities persists, a greater sell-off might follow a short-term pop

It looks like the easy-money, quantitative-easing days of the Federal Reserve that buttressed crypto markets are winding down.

In its two-day policy meeting that concluded Wednesday, the Fed signaled it would likely begin to raise interest rates in March in tandem with cutting down its balance sheet. 

“I would say that the committee is of a mind to raise the federal funds rate at the March meeting, assuming that conditions are appropriate for doing so,” Fed Chairman Jerome Powell said following the Federal Open Market Committee (FOMC) meeting.

The Fed elected to keep rates near zero for now, opting to wait for further tapering of asset purchases before raising rates. 

“With inflation well above 2 percent and a strong labor market, the committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the FOMC said in the statement

Inflation, meanwhile, continues to rise. For the first time since 1982, the consumer price index (CPI) jumped 7% year-over-year across the board in December.

“The economy no longer needs to sustain high levels of monetary policy support,” Powell said. 

Markets were largely unphased on the news, with bitcoin rallying above $38,000 and the S&P 500 and Dow Jones Industrial Index each rising about 1%.

The policy shift comes as the correlation between cryptocurrencies and equities continues to tighten. 

“So long as the strong correlation with traditional finance and risk-on assets persists, bitcoin may experience a bullish relief rally in the near-term after the dovish Fed announcements today,” said Josh Olszewicz, head of research at Valkyrie Funds. “When the Fed does raise rates later this year, should the correlations with risk-on assets persist, Bitcoin may also experience bearish price pressures.” 

Any rate hike would be the first since 2018. After March, it’s not clear whether additional rate hikes could be in store this year. 

“It is not possible to predict with much confidence exactly what path for our policy is going to prove appropriate,” Powell said. 


Get the day’s top crypto news and insights delivered to your inbox every evening. Subscribe to Blockworks’ free newsletter now.


Tags

Upcoming Events

HYATT REGENCY SALT LAKE CITY

TUES, OCT. 8, 2024

Guided by the expertise of Blockworks Research Analysts team, this one day event will feature senior leaders, entrepreneurs, and developers from across the crypto industry. Attendees will have the opportunity to participate in an immersive experience to explore the latest trends, […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

hivemapper.jpeg

Research

We believe crypto market participants overlook Hivemapper’s fundamental potential due to a poor understanding of both the niche map data market and Hivemapper’s positioning relative to incumbents. Hivemapper’s token model catalyzes both a cost and product advantage via unmatched map freshness and near real-time accuracy, which is its wedge into a market characterized by stale data and high data collection costs. Its current and potential future product suite may represent one of the strongest possibilities for PMF in crypto today.

article-image

👨‍⚖️ SBF’s courtroom sequel: Plus, Coinbase’s legal loss was DeFi’s gain

article-image

Public mining companies have been acquiring sites, refreshing machine fleets and diversifying business models in preparation for the event

article-image

Exploit shows centralization can sometimes be an asset

article-image

The Fidelity Ethereum Fund, like other proposed ETH ETFs, seeks to stake a portion of its assets, according to the firm’s Wednesday registration statement

article-image

The DAO first voted on enabling SAFE transfers over a year ago