The market is reacting to the Federal Reserve raising its benchmark interest rate today.
What happened
After a tough start to the week, cryptocurrencies and crypto stocks poked their heads above water following the conclusion of the Federal Reserve’s September meeting Wednesday.
Over the last 24 hours, the price of the world’s largest cryptocurrency, Bitcoin (BTC -2.30%), traded 1.2% higher as of 3:48 p.m. ET today. The price of Bitcoin jumped back over $19,000, as of this writing, after dipping below that level earlier this week.
Shares of the Bitcoin miners Marathon Digital (MARA 5.75%) and Hut 8 Mining (HUT 4.37%) traded roughly 4% and more than 7% higher. Earlier in the afternoon, both stocks had been up by more than 10%.
So what
All eyes were on the Fed today after August inflation data earlier this month came in hotter than expected. The market by and large expected the Fed to make a 0.75% hike to its benchmark overnight lending rate, the federal funds rate, which the Fed delivered on.
The market has struggled this week, as some investors worried that the Fed might surprise everyone with a full 1% hike. Still, the 0.75% rate hike is the third consecutive such move in a row since June. The federal funds rate now sits within a range of 3% and 3.25%.
Bitcoin and the crypto industry have not fared well under these intense rate hikes, which raise the yields on safer assets and tend to put pressure on riskier assets.
Following the Fed’s meeting, Fed Chairman Jerome Powell said in a press conference, “We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%.”
The Fed, however, has become more hawkish with its projections in its most recently released dot plot, which shows where the federal funds rate could be headed. Members of the Fed expect the federal funds rate to end the year at 4.4% and then slow down and end 2023 at 4.6%. With only two meetings left in 2022, that means the Fed expects to have to do another 0.75% rate hike and a 0.50% hike.
While the bulk of rate hikes may now be in the rearview mirror, there still could be more to come and investors are now likely thinking more about what will happen once the hikes fully impact the economy. The labor market is expected to eventually deteriorate and the market is largely unsure if the Fed can engineer a soft landing or if the economy is headed toward a more severe recession.
Now what
Unfortunately, it looks like the fate of Bitcoin and other crypto stocks is tied to the Fed’s policy-making decisions right now, and it looks like more rate hikes are ahead.
I didn’t see anything specific driving Bitcoin, Marathon, and Hut higher today other than what looks to be a slight rebound from earlier in the week when investors feared the possibility of a 1% rate hike today.
While Marathon and Hut could bounce once Bitcoin rebounds, I am not a huge fan of the Bitcoin mining space because these companies have to worry about fixed costs and hardware even in challenging times like a crypto winter. I’d much rather place my faith in Bitcoin, which I do believe will eventually bounce back over the long term.
