Yesterday Fed chairmen Jerome Powell held a press conference in which he announced a rate hike of 25 bps. The stock, as well as the crypto market, reacted positively even before the news broke in the evening in Europe. The wait is over and we finally know what to expect in the month to come.

Why is the Fed decision important for the crypto market? And how will future rate hikes be going to affect it?

Everything went as expected

Most analysts were expecting a hike of 25 bps and their expectations were met yesterday during the press conference. The Fed is trying to fight inflation and the only instruments suitable are raising interest rates and reducing the balance sheet.

In effect, market participants can expect to earn money with less risky investments. Bitcoin and crypto on the other hand are viewed as risk-on assets. It was this expectation that led to the sharp price drop in December 2021 when it became clear that the Fed is going to change its policy.

Now the results are in and we have the confirmation that these changes won’t be harsher. Yet, it remains to be seen how many times the Fed will increase the rates throughout the rest of the year.

Bitcoin is still protection against inflation

The Feds policy will work slowly meaning that inflation is still very high but is to be expected to get closer to the 2 % goal this year. That being said, Bitcoin went down because the Fed might be successful in fighting inflation. But what if the new policy fails?

With its ultimate scarcity and its growing adoption, BTC still offers a chance to act as an effective hedge against inflation. It remains to be seen how things going to play out throughout the rest of this year. As for the rest of the crypto market, it has completely different dependencies. The metaverse for instance will not so much depend on the Feds decision but on user adoption.

The same can be said about Web3 and decentralized finance. While many tokens show a less convincing performance, others like Terra and the LUNA token are outperforming the rest of the market. Of course, this is also due to the fact that the decentralized stablecoin UST depends directly on LUNA and has become increasingly popular in the last couple of months.