Bitcoin tumbles 10% with FED’s signal to hike interest rates sooner than expected

New Delhi (CoinChapter.com): U.S. Federal Reserve on Thursday signaled that it could tighten monetary policy much sooner than expected in an attempt to combat rising inflation. The news of rising interest rates has bitten deep into the equity markets and pushed yields higher on government bonds. The shift in stance also incited a sell-off in Bitcoin(BTC), which shed around 10 percent of its value in the last 24 hours to trade at $42,645, on Friday, according to the FT Wilshire Bitcoin price gauge.

As per Coinglass data, the sharp drop from about $47,000 level washed out open positions to the tune of $895m worth on various exchanges. Marking the biggest wipe-out since December 3, Bitcoin has lost over 36 percent of its value since its all-time high of $67,000 in November 2021.

Priority ‘Inflation Targeting’ amidst tightening Job market

U.S. Policymakers, in December 2021, agreed to expedite the end of their pandemic-era quantitative easing program of bond purchases. FED also issued forecasts citing three quarter-percentage-point increases during 2022 from the current benchmark overnight rate set near zero.

“A very tight job market and unabated inflation might require the Federal Reserve to raise interest rates sooner than expected and begin reducing its overall asset holdings as a second brake on the economy,” U.S. central bank policymakers said. The Fed’s abrupt shift in policy came to counter inflation cruising at more than twice the central bank’s target of 2%.

As per the CME Group’s Fed Watch tool, the probability that the Fed would raise interest rates for the first time since the pandemic started in March 2022 rose to more than 70%. Moreover, the Fed’s prospect of reducing its presence in long-term bond markets pushed the U.S. 10-year Treasury yield to its strongest level since April 2021.

“It could also be only appropriate to begin to reduce the size of the Federal Reserve’s $8.8 Trillion balance sheet relatively soon after beginning to raise the federal funds rate,” the FED meeting minutes stated.

Increasing correlation among Equities and Bitcoin

The impact of action in traditional markets on digital asset prices has been growing in recent months, courtesy of the involvement of Wall Street investors in cryptocurrency markets. This has solidified the relationship between equity markets and Bitcoin’s price, as large investors react to events. For example, despite the imbroglio, Goldman Sachs forecast that Bitcoin could soon hit $100,000 if it took away market share from gold.