On Thursday, Bitcoin and various other cryptocurrencies experienced a notable rally, mirroring the positive sentiment in the stock market following a Federal Reserve decision that was seen as supportive for risk assets. This rally suggested that the recent correction that had gripped the crypto market over the past week may have come to an end.
Bitcoin, the largest cryptocurrency by market capitalization, saw its price surge by 7% over the past 24 hours, reaching close to $67,500. This rebound came after Bitcoin had dipped to the $60,000 zone during its trough on Wednesday. The cryptocurrency had faced a period of selling pressure over the past week, triggered after it reached a record high near $74,000. However, prices began to recover after the Federal Reserve signaled its intention for three interest rate cuts this year, which propelled the Dow Jones Industrial Average, S&P 500, and Nasdaq to new all-time highs.
Steven Lubka, head of private clients at crypto firm Swan Bitcoin, commented on the recent price action, stating, “Bitcoin rallied leading into the [Fed] meeting and after, paring the earlier losses of the last week. The recent drop was likely overdone.”
While the Federal Reserve opted to keep interest rates unchanged, Fed Chairman Jerome Powell indicated during a press conference that recent high inflation readings do not significantly alter the case for interest rate cuts in the coming months. Moreover, the dot plot, which summarizes individual economic projections from Fed officials, suggested that multiple reductions to benchmark borrowing costs are on the horizon this year.
The Federal Reserve’s stance is crucial for crypto markets because cryptocurrencies, much like stocks, are influenced by interest rates and broader market sentiment. When interest rates are higher and yields on government bonds are elevated, investors tend to have fewer incentives to invest in higher-risk assets like Bitcoin. Conversely, when interest rates decline, traders are more inclined to explore riskier investment opportunities such as cryptocurrencies.
In addition to Bitcoin, Ether, the second-largest cryptocurrency by market value, surged by 11% to nearly $3,600. Other smaller tokens also experienced gains, with Cardano climbing by 5% and Polygon increasing by 4%. Memecoins, a category of cryptocurrencies known for their whimsical nature, outperformed, with Dogecoin skyrocketing by 16% and Shiba Inu surging by 9%.