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Cryptocurrency market maintains stability amidst ripples caused by Fed rate hike


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Despite the Federal Reserve’s decision to raise interest rates, the cryptocurrency market remains resilient and shows signs of detachment from the traditional financial markets.

The Federal Reserve announced a 25 basis point hike on May 3 in response to rising inflation, which sent shock waves through various financial markets.

However, the cryptocurrency market remained resilient, recording a 1.73% increase in the last 24 hours and reaching a market cap of $1.20 trillion.

This flexibility has raised questions about the future direction of the cryptocurrency market and its possible decoupling from traditional financial markets.

Separation from traditional markets

In a stunning move during its meeting in May, the Fed opted for a quarter-percentage point increase in the federal funds rate, settling in a range of 5%-5.25%.

This decision represents the tenth such rise, sending borrowing costs to their peak since September 2007.

Interestingly, the cryptocurrency market has shown signs of a gradual decoupling from traditional stocks. On May 3, US indices closed in the red, with the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all posting losses.

In stark contrast, the cryptocurrency sector has remained solid. Bitcoin (BTC) gained more than 1.5%, reaching a trading value of $29,085 on May 4.

Over the course of the week, bitcoin has reclaimed important areas as investors are closely watching the possibility of a breakout beyond the crucial $30,000 resistance level.

Moreover, Bitcoin and the broader cryptocurrency market have shown growing immunity to the ongoing US banking crisis, raising questions about their ability to sustain price performance amid looming macroeconomic uncertainty.

In related news, cross-chain analytics firm Santiment reported a significant increase in volume activity following the rate hike announcement, suggesting a positive market reaction to this development.

What do you expect next?

The FOMC recognized that tightening credit conditions is likely to put pressure on economic activity, employment and inflation.

In light of these factors, Fed Chair Jerome Powell emphasized the need for continued assessment of further policy tightening. He warned that uncertainties surrounding credit conditions could lead to a mild recession.

After Powell’s statement emphasizing the strength of the US financial system, many US stocks fell, exposing the major deficiencies in the current US economic environment.

Meanwhile, in the ever-changing financial landscape, cryptocurrency investors continue to show confidence in the long-term potential of digital assets, even as they navigate the uncertainties of the changing macroeconomic environment.

Market participants should closely monitor the Federal Reserve’s regulatory announcements and other central banks’ policies.

Understanding the interplay of global economic trends in the midst of these turbulent times can help investors make informed decisions and take advantage of the opportunities presented by a segregated financial landscape.

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