Signal of Interest Rate Increase in FED Minutes Triggers Bitcoin Price Drop

• Bitcoin fell below $29,000 on Thursday after the US Federal Reserve indicated the need to maintain its tight stance in the meeting minutes published on August 16.
• Ethereum is also struggling to hold the $1,800 support level and is trading around $1,795 with a 1.5% drop in the last 24 hours.
• The central bank’s interest rate hikes have been one of the most important factors limiting the rise of risky assets such as stocks and cryptocurrencies.

The signal of interest rate hikes in the Fed meeting minutes increased expectations and caused a decline in Bitcoin and stock markets.

Fed Minutes Caused a Decline in Bitcoin

Bitcoin fell below $29,000 on Thursday after the US Federal Reserve indicated the need to maintain its tight stance in the meeting minutes published on August 16. Bitcoin experienced a 2% drop overnight and is currently trading around $28,600.

This decline also pulled down the broader crypto market, with the total market value dropping by 1.7% or nearly $20 billion overnight, according to data. Ethereum is also struggling to hold the $1,800 support level and is trading around $1,795 with a 1.5% drop in the last 24 hours.

The S&P 500 index continued its decline since Tuesday and experienced a 0.76% drop. NASDAQ closed the day with a 1.15% decline.

The Dollar Index (DXY) gained 0.54% against other major currencies this week due to the Fed’s interest rate expectations and reached a one-month high yesterday.

Are expectations increasing for interest rate hikes?

In the Fed policy interest rate meeting last month, the interest rate was raised to the highest level in 22 years, between 5.25% and 5.50%. Many expected the interest rate hike, which started aggressively from zero in March 2022, to be one of the last increases made to control high inflation.

The central bank’s interest rate hikes have been one of the most important factors limiting the rise of risky assets such as stocks and cryptocurrencies. Higher borrowing costs suppress growth and expansion and attract investors to safer bets like Treasury bonds. It is also one of the fundamental tools in the Fed’s hands to balance rising consumer costs.

However, the latest meeting minutes show that the Fed’s decision-making committee is “extremely cautious about inflation risks.” The document also stated that the business outlook is positive with “strong” job gains and low unemployment rates.

Expectations for interest rate hikes increased after the release of the minutes. CME’s FEDWatch tool shows that traders raised their expectations for interest rate hikes from 10% to 13.5% after the publication. The press release stated that the Fed may consider implementing policies that could potentially turn inflation around to two percent over time.

The next Fed interest rate meeting will take place on September 20, 2023. There will be two more interest rate decisions this year, scheduled for November 1, 2023, and December 13, 2023.