Investors in both crypto and traditional markets woke up to a sea of green this morning, as prices rallied following a 75-point interest rate hike agreed on by the Federal Open Market Committee (FOMC).
In the past 24 hours, global crypto market cap underwent a steady 8% rise concurrent with the best daily performance in two years for the S&P500 and tech-heavy NASDAQ index, themselves lifted by an upshot on Microsoft and Alphabet shares.
But investors should be wary of looking too much into what is likely a brief bear rally, according to GlobalBlock analyst Ben Small.
“It’s quite easy to get carried away with those big rises and totally forgetting what has happened in the markets in general,” said Small, alluding to downward pressures following aggressive tightening by the US Federal Reserve and governments across the world.
Dion Guillaume from centralised exchange Gate.io also advised against looking too far into recent movements.
“I think the rally happened more out of relief than anything. Prior to the FOMC meeting, many were speculating that the rate hike could be as much as 100 base points. Now that it has been finalised as "just" 75, every single market breathed a sigh of relief and went up,” Guillaume told Proactive.
Hikes? could have been worse
Given the 28-year-high rate hike imposed in June and the 22-year-high just one month prior, many were expecting more of the same this time around.
Instead, the Fed agreed on a less-aggressive 75bps hike, a decision that may have contributed to a short relief rally.
“People, I think, were factoring in a far worse situation,” said Small, adding: “I think what we’ve done is just retrace back to the higher end of the trend that we’re stuck in.”
If that is the case, then Bitcoin could be set to resume year-to-date trends that have knocked 50% of the total crypto market capitalisation so far.
As for NASDAQ, its year-to-date price is down about 25%, a figure that any brief daily rally should be measured against.
Going forward
The Fed has indicated that now that front-loaded hikes have been put in place, hawkish monetary policy could cool off as the central bank nears its target rate.
In the words of Federal Reserve chairman Jerome Powell: “As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases,” while also warning: “While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data we get between now and then.”
The fact that crypto and tech stocks continue to be discussed in the same breath shows that a degree of correlation will remain, although crypto-specific macro pressures — predominantly regulation — will likely have as great an impact on the market going forward.
In the UK, for instance, the Law Committee recently published the opinion that property rights should be extended to crypto assets, including NFTs.
Meanwhile, the SEC continues its crypto crusade against what its considers unregistered securities, while the European Union has its own set of regulations set to be implemented under the Markets in Crypto-assets proposals.
For now, it could be best to lay off the FOMO until the markets show a bit more stability.