The crypto rebound is on everybody’s mind this week. How could it not be after seeing $1 trillion wiped from the global crypto market capitalization? The recent crash has been beyond damaging to the investing world, and now that crypto prices are beginning to recover, investors aren’t exactly excited by the possibility of more losses. But today marks the second day of the Federal Open Markets Committee’s (FOMC) January meeting, and it doesn’t stand to be an aid to crypto prices. In fact, just the opposite is true.
Crypto bulls think the Federal Reserve will remain a thorn in the side of digital currencies. Why?
The meeting this week is likely to come with a big announcement… or at least a hint of one. With that in mind, what do investors need to know now?
Crypto Rebound Faces Potential Roadblock From Interest Rate Hikes
- The two-day Fed meeting, which concludes this afternoon, is a space through which the central bank can address rising inflation.
- The same economic issues which plagued 2021 are still deeply influencing the economy in 2022. Indeed, Americans are seeing the consumer price index (CPI) pushed ever-higher thanks in large part to unalleviated supply chain issues.
- In an effort to combat this inflation, experts expect the Fed to call for several interest rate hikes over the course of 2022.
- Some believe the first rate hike could come as soon as the next Fed meeting, which is in March.
- An interest rate hike spells bad things for the crypto rebound in the same way it stands to hinder growth stocks.
- As interest rates go up, investors tend to cycle out of riskier investments, like growth stocks and crypto.
- The rate hikes could keep much-needed capital from rushing back into the drained crypto asset class. This will keep crypto prices down in the valleys they are currently crawling out of.
- This hinderance is already showing itself today; as Economic Times points out, trading volumes of the largest cryptocurrencies are stagnant. Investors are obviously holding out to see if the Fed really will implement a March rate hike. If it does, crypto investors may react poorly.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.