Following Fed Chair Powell's Assurance That Rates Will Rise, Bitcoin Climbs Above $22k, Stocks Struggle

Bitcoin fell below $22,000 following U.S. In his two-day semi-annual monetary policy testimony before Congress, Federal Reserve Chair Jerome Powell stated in prepared remarks that inflation had continued to be unexpectedly high. Yet the largest crypto by market capitalization swiftly recovered to trading above the barrier for much of Tuesday.

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Bitcoin was last trading at roughly $22,060, down about 1.6% from Monday, similar time. Even as a flurry of employment announcements and price indications have renewed inflationary concerns, Bitcoin has mainly maintained a price of above $22,000.

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The most recent economic data have exceeded expectations, which means that interest rates would likely end up higher than projected, Powell said on Tuesday in front of the Senate Banking Committee. "We would be willing to increase the pace of rate hikes if the sum of the data were ever to indicate that greater tightening is needed."

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The second-largest cryptocurrency, Ether (ETH), fell 1% during the past day to trade near $1,550. The CoinDesk Market Index, which gauges the performance of the whole cryptocurrency market, was down 1.3% for the day.

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Similar to the equities markets, which also struggled with Powell's speech, the majority of other big cryptocurrencies were substantially down. The main equity index for Wall Street, the S&P 500, closed down 1.5%, while the Dow Jones Industrial Average (DJIA) and the heavily weighted Nasdaq Composite for technology also fell by 1.7% and 1.2%, respectively. According to the CME FedWatch Tool, the likelihood of a 50 basis point (bps) interest rate increase rather than a more dovish 25 bps now stands at above 70%, which is roughly the opposite of the probability from last week.

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According to David Brickell, director of corporate sales at cryptocurrency liquidity network Paradigm, rates are currently "the missing piece of the puzzle." He made this statement in a weekly newsletter. "Conditions look perfect for a surge higher, which could be painful for a marketplace that remains under-positioned risk," said the author. "Should they continue to revert lower."

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However, since late 2022, there has been a decreasing trend in the connection between cryptocurrencies and stocks. According to data from Trade Algo, the 90-day correlation coefficient between bitcoin and the S&P 500 is currently 0.38, which is the lowest level since June 2022. A coefficient of 1 denotes perfect synchronization, while a value of -1 denotes that the movements are going in the opposite directions.

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In an interview with Trade Algo, Samir Kerbage, the chief investment officer of the cryptocurrency asset manager Hashdex, said that if the Fed's interest rate hike is "far different" than expected, there may still be "a major fluctuation" in cryptocurrency prices. The 50-basis point boost for March is "still difficult" for markets, he noted.

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While Bitcoin was able to cling onto the lower limits of its important trading range after Powell's testimony, according to senior market analyst Edward Moya of foreign exchange market maker Oanda, risk appetite across the board is "extremely susceptible."

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Cryptocurrencies "may struggle to establish new 2023 lows if this wave of risk appetite does not subside," he warned.

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