Cryptocurrency prices rallied quickly after the Federal Reserve hiked rates by 0.75% instead of 1% in an effort to slow down high inflation rates.
Bitcoin, one of the most popular digital assets, rose by 8.69% to 22,786 in afternoon action while ethereum increased by 15.64% to 1,595.01.
The second largest increase in valuation was 10.2% to 58.15 in litecoin.
The Federal Reserve delivered its second major rate hike in succession on Wednesday, raising its target rate by 0.75% and stating that expects "ongoing increases" in the months ahead despite slower growth in the economy.
The Fed's hike to a range of 2.25% to 2.5% matched the largest move since 1994.
In recent days the financial markets had begun to anticipate expected a rate hike of 1%, which could be one reason the stock and crypto markets soared as Fed Chairman Jerome Powell discussed the implications of the smaller increase.
Why Bitcoin, Ethereum Rallied
The broader cryptocurrency market, which currently is valued at $1.09 trillion, has suffered losses of over $2 trillion since peaking in late 2021. Fears of an impending recession, disruptions from Russia's war on Ukraine and scandals affecting crypto lenders all helped contribute to the slide.
Before the Fed meeting today, the central bank had been clear that a 1% hike was not a viable option, said Mikkel Morch, executive director at Digital Asset Investment Fund ARK 36.
"The markets have had enough time to digest and fully price in a 75 basis point rate hike," he said.
The rally in bitcoin and ethereum "may suggest that market participants were actually quite fearful of the 100 bps and sighed with relief when the raise aligned with the consensus," Morch said.
Crypto valuations could see "some room for upside" now since the next Fed meeting does not occur until September, but the strength of the dollar and the wider macro environment will both play a factor, he said.
Investors should not bet that bitcoin and other digital assets will continue to increase because another rate hike could bring down valuations, Morch said.
But if Powell "ignores the growing evidence of a recession and continues on its hawkish course, it will be a strong signal to the markets that they can’t count on the Fed to pivot before the midterm elections in November," he said.
If the Fed hikes rates again by 0.50% or 0.75%, it will "likely trigger a sharp sell-off in risk assets,” Morch said.
The crypto market is beginning to correlate more with the stock market. said Damian Scavo, CEO at algorithmic trading platform Streetbeat.
“The market reacted very positively to the increase of the 75 basis point, as the economy saw this as a bold move that could help slow down inflation faster," he said. "The crypto economy also moves up, overperforming the stocks, thanks to the higher volatility. It means that the crypto market is reaching a certain level of maturity.”
Bitcoin will continue to trade within a tight range of $20,000 by either an increase or decline of 10% to 15%, said Chris Terry, vice president of Enterprise Solutions at SmartFi, an open lending platform.
"None of this should be a surprise, he said. "We could be in this stalled market for weeks and weeks. Boring.”
