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Fed Raises Interest Rate to 22-Year High: Here’s How Crypto Markets Have Reacted

Last Updated August 11, 2023 11:29 AM
Nikola Lazic
Last Updated August 11, 2023 11:29 AM

Key Takeaways

  • The US Federal Reserve increased interest rates to a 22-year high of 5.5% on 26 July.
  • The cryptocurrency market has not really reacted to the news so far. 
  • The early signs from on-chain data suggest that long-term investors are ready for a selloff.

The United States Federal Reserve announced it would raise its interest rates by 0.25% to 5.5% on 26 July. This means that they are at their highest level since 2001, when the bursting of the dot com bubble and the after-effects of the September 11 attacks saw it reach that point.

 

Increasing interest rates is the Fed’s way of stopping inflation and tightening the economy. This could cause a decline in Treasury yields and could also have a negative impact on the cryptocurrency market. 

How has the Crypto Market reacted? 

The cryptocurrency market  has been seemingly oblivious to Fed chairman Jerome Powell’s announcement. At the start of 26 July the total crypto market cap was around $1.14 trillion and, after a minor decline, it rose to a daily high of $1.155 trillion. 

The next day, 27 July, it dropped to $1.138 trillion, a pretty minor fall of less than 1.5%. Indeed, at the time of writing, the market has gone back up again. 

The market has been on something of a downtrend since it reached $1.22 trillion on 14 July. Although the market’s growth was partially down to excitement triggered by a judge ruling that Ripple’s XRP crypto was not a security, it may also have been that investors expected the Fed to raise interest rates. 

Not only was the overall market unaffected, the news did not have an impact on the altcoin market – that is, the crypto market excluding Bitcoin (BTC) – or on the market without either Bitcoin or Ethereum (ETH), the second largest cryptocurrency.

 

In fact, the crypto market is currently experiencing a rise, albeit a minor one

On-chain data 

Looking at the Bitcoin Exchange Reserve chart data from Cryptoquant (below), we can see that the Bitcoin to exchange inflow increased on 26 July. 

On 17 July the total number of Bitcoin in the exchange’s wallets was 2,077,339, the lowest amount since 2018. After that it started increasing in small increments but really picked up the pace on July 26. It is currently sitting at 2,090,599, its highest point since May. 

This could mean that there is selling pressure coming from the coin’s long-term holders.

The Spent Output Profit Ratio (SOPR), a financial metric that represents the proportion of money invested or spent on a project or initiative to the resulting profit generated, has been going down since 26 July, dropping from its neutral mark of one to 0.985 on the next day. This means investors have been selling for a small loss. 

Coin Days Destroyed (CDD) was on the rise as well, climbing from 3,757,690 on 26 July to 23,108,957 on 27 July. CDD is a metric that displays when a unspent transaction output (UTXO), a unique unit of cryptocurrency in a blockchain that has been received as an input in a transaction and has not yet been used as an input in any subsequent transaction, is destroyed. It is calculated as the “sum value of the number of days between created and spent multiplied by the UTXO amount”, giving more weight to the longer-serving UTXO. High values suggest that long-term holders have been potentially getting ready to sell their coins.

Conclusion 

The Fed has increased interest rates by another 25 base points, which was expected. Some traditional asset classes have been affected by this news, but it appears that the crypto market has been unfazed. 

The overall crypto market cap charts suggest that there was not any significant price movement on 26 July. However, there are some on-chain signs that investors are anticipating another selloff. Long-term holders have increased their activity, and some have already sold their crypto for a small loss. 

This may be a sign that the crypto market is yet to fall down, but is waiting for larger movies in the traditional asset classes.

Disclaimer

Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.

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