Bitcoin fell Wednesday after the Federal Reserve raised its key interest rate by a quarter of a percentage point, as widely expected, while the Fed chairman Jerome Powell said it’s “the most likely case” that the central bank would refrain from cutting its key interest rate this year.
The largest cryptocurrency BTCUSD, -0.58% dropped 4% over the past 24 hours to as low as $ 26,685 Wednesday, according to CoinDesk data.
The pullback came after bitcoin rallied almost 50% in less than two weeks, as three regional U.S. banks collapsed and the Fed announced an emergency loan program to backstop depositors at the institutions and across the whole banking system.
The stress in the banking sector prompted some investors to expect that the U.S. central bank would start cutting its key interest rate soon. However, Powell’s comments on Wednesday dashed such hope, noted Michael Safai, founding partner at Dexterity Capital. It has thus weakened some of the momentum that led to bitcoin’s rise in recent days, said Safai.
Still, bitcoin’s earlier rally also happened as investors sought diversification from bank deposits and as the Fed injected liquidity into the financial system, Peter Eberle, chief investment officer at Castle Funds, said in a call.
The ongoing weakness in the banking system and the potential for increases in central bank balance sheets haven’t disappeared completely, Safai said in emailed comments. “This could provide a floor for cryptocurrencies once the broader institutional reaction to the Fed settles down,” according to Safai.
Major stock indexes also traded lower Wednesday, with the Dow Jones Industrial Average DJIA, -1.63% closed down 1.6%. The S&P 500 SPX, -1.65% finished 1.7% lower and the Nasdaq Composite COMP, -1.60% dropped 1.6%.