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- The Bitcoin price jumped quickly within hours of the Fed announcing the interest rate hike and despite turmoil in the US banking system.
- The latest BTC price move leads to further decoupling of the asset class from US equities.
On Wednesday, May 3, the US Federal Reserve announced another 25-basis interest rate hike, which was its 100 consecutive interest rate hike in just over a year’s time. Interestingly, hours after the announcement, the Bitcoin (BTC) price jumped by over 2 percent shooting past $29,000.
The good thing is that Bitcoin is showing strong resilience as the US banking crisis continues to get from the bad to the worse. After the collapse of the First Republic Bank last week, the share price of PacWest Bancorp.’s collapsed by more than 50 percent during Wednesday’s trading session.
The recent rate hike from the US central bank has pushed interest rates above 5 percent for the first time since 2007. This comes at a time when the US economic growth looks fragile while inflation continues to remain elevated. During the banking crisis that unfolded in March 2023, regulators have been throwing the blame on crypto. However, the narrative isn’t working anymore and the recent developments highlight the inherent cracks within the traditional financial system.
In its report last month in April, banking giant JPMorgan said that the ongoing baking crisis is a “vindication for the crypto ecosystem”. The report added:
“The U.S. banking crisis and the intense shift in U.S. bank deposits to U.S. money market funds are viewed by crypto supporters as a vindication of the crypto ecosystem,” with analysts arguing that the crisis exposed the weaknesses of the traditional financial system given bank’s maturity mismatch is susceptible to bank runs.
Bitcoin and Crypto Decreasing Correlation With Equities
So far this year in 2023, Bitcoin (BTC) has outperformed almost every other asset class with more than 75% returns year-to-date. Leaving equities behind with a huge margin, Bitcoin has strongly decoupled from the traditional financial markets.
On Wednesday, May 3, all of the top three US indices ended in the red, however, Bitcoin took the opposite trajectory gaining by more than 2 percent. It seems that the initial reaction of crypto to the interest rate hike was that crypto investors don’t need to worry until the next fiscal policy decision in June.
Also, Bitcoin’s gains on Wednesday came on a convincing note as the Bitcoin address activity reached to its highest in over two weeks. On-chain data provider Santiment reported:
This was the highest address activity day in two weeks, and the one from two weeks ago was mainly credited due to a major price drop that traders were reacting to. This rally seemed to be much more related to the rate hike finally being official, and you can see how active addresses pushed even higher directly after the announcement.
On the upside, Bitcoin has still to overcome the strong resistance of $30,000, post which it can resume its rally to $35,000 and beyond.
