The Federal Reserve has increased the federal funds rate by 0.5 basis points to a range of 0.75% to 1%. The increase is as per the expectations of monetary policy experts and economists who have been calling for a rate hike to tame the creeping inflation in the US.
The Federal Reserve Board, headed by Jerome H. Powell, and deputized by John C. Williams, voted unanimously for the change.
According to the official press release, the Federal Reserve is working towards reducing its balance sheet by 1st June 2022. They aim to achieve this by divesting from agency mortgage-backed securities, agency debt, and Treasury securities.
The Fear and Greed Index for Crypto Has Improved
The Fear and Greed index for Crypto had plunged to a low of 21/100 before the Federal reserve board met. After the increase in the benchmark rate, the index for Cryptos to 27/100, and all indicators are pointing out that the curve is on an upward trajectory.
A low rank indicates that the investors are fearful of the market trends, and they, therefore, tend to short sell their assets to hedge their losses. On the other hand, Greed is characterized by an increase in buy orders, which tends to increase asset prices.
Crypto Market Cycles Are Influenced by Federal Reserve Decisions
A month ago, Novogratz had projected a bull run if the Federal Reserve shelved the interest hike plan. However, the idea is not feasible in the current macroeconomic environment, and the rate has been hiked.
From a financial perspective, an interest rate hike mops out excess liquidity in the market resulting in a low supply of fiat money to invest in the capital and crypto market. Therefore, stock markets plunge whenever the benchmark rates are increased.
Reduced liquidity also affects the inflows of fiat money into the Crypto asset resulting in reduced buy orders and increased sell orders. This results in downward pressures, which can prolong a bear run.
The Crypto Market is in the Greens
Although liquidity in the financial market is set to reduce, the fear and greed index marginal improvement indicates that some investors are projecting an inflection on the Crypto market.
According to Coinmarketcap data, the listed value of the leading Cryptocurrencies had increased and reversed the seven days of losses that were prevailing before the Federal Reserve released the changes to the public.
Bitcoin is up by over 4% and is currently trading at $39,623 after hitting an intraday high of $39,902. Ethereum, on the other hand, is up 4.85% and is trading at $2,933, which is near the ideal short-term upper limit of $3,000. TRON, SOLANO, AVALANCHE, and other Crypto are also bullish amid increased trading volumes.