Has Crypto Priced in a Pause in Interest Rate Hikes?

24.04.2023

131 2 minutes read

The Federal Open Market Committee (FOMC) meeting is due next week. What would be the impact on crypto if the Federal Reserve (Fed) paused its interest rate hikes?

As the Consumer Price Index (CPI) hit 5% year-on-year, discussions amongst investors of a pause in interest rate hikes intensified. The next FOMC meeting is set for May 3, but will a pause result in an upside move in the markets?

Sell the News Event?

The banking collapse in March fueled the expectations for a pause in the Fed’s interest rate hikes. Hence, the price of Bitcoin (BTC) has rallied by over 40%.

BTCUSD, BITSTAMP. Source: TradingView

However, considering such a rally, some may argue that the market has already priced in the Fed rate hike pause. Evercore strategist Julian Emanuel told Barron’s, “In 2023, a pause, given that there are rate cuts priced for July, is likely a ‘sell the news’ event.”

Crypto influencer Shivam Chhuneja also believes the market has factored in the Fed interest rate pauses. But, according to Chhuneja, an official announcement might result in a risk-on attitude from the investors. He told BeInCrypto:

So, in my opinion, it would be a great move to bring some much-needed relief to the people, but the markets seem to be factoring it in.
The markets have been relatively relaxed since the conversation of the Fed possibly pausing the rate hikes has been making the rounds.
However, for the crypto market, I feel it would be interesting to see how people take the risk-on attitude slowly.
We saw a good rally in Bitcoin but not much in altcoins compared to how things have been in the past in crypto.
This possibly gives us an idea that the people were still not much “risk-on” in their approach. It would be interesting to see if an official announcement of the rate hike pause will finally turn the tables for the crypto traders and investors to start taking more risk.

Meanwhile, Gaurav Dahake, the Chief Executive Officer of BNS crypto exchange, believes that a pause might raise the likelihood of the next bull run. However, he also warned of the uncertainty due to the Fed’s policy. He told BeInCrypto:

A pause in the Fed’s rate hike could encourage investors to explore alternative assets, such as cryptocurrencies, as they search for higher returns. This heightened interest could translate to increased investments in the crypto market, raising the likelihood of a future bull run.
However, it is crucial to note that the crypto market’s reaction to changes in the Fed’s interest rate policy may not be uniform or predictable.

A Need for Fed Interest Rate Hike Pause?

The consecutive interest rate hikes have resulted in a liquidity crunch in the market. Industry participants also believe that the collapse of major banks, such as Silicon Valley in March, was due to the tightening of the Fed’s monetary policy.

BeInCrypto reported that the former Fed executive, Claudia Sahm, believes the agency should pause the interest rate hike and give the world a chance to catch up.

Robert Reich, a professor of public policy, wrote in The Guardian, “The sensible thing would be for the Fed to pause rate hikes long enough to let the financial system calm down. Besides, inflation is receding, albeit slowly. So there’s no reason to risk more financial tumult.”

However, investors are not expecting a pause in the next FOMC meeting. According to the CME Group, there is a 90% probability of a 25 basis points rate hike in May. But will the July FOMC meeting bring a zero rate hike?