Optimism creeps back into crypto, with the 2022 test still to come

Cryptocurrency markets showed early signs of optimism after the Federal Reserve announced a 25 basis-point interest-rate increase, the central bank's first hike since July 2023. The move coincided with modest gains for major tokens: bitcoin rose roughly 1% and privacy-focused token zcash surged about 23% to a new high, according to CoinDesk's Daybook newsletter.

Despite the rally, analysts and traders flagged historical caution. Bitcoin remains near 40% below its October all-time high of $126,000, a distance similar to its position when the Fed began tightening in March 2022. At that time, bitcoin climbed about 18% over 12 days before plunging roughly 50% over the following months, a downturn that unfolded alongside the collapse of crypto exchange FTX.

Other market indicators pointed to persistent macro pressures. Spot bitcoin exchange-traded funds experienced notable outflows, with $746 million leaving funds on Tuesday and Wednesday, and futures markets were pricing in the possibility of an additional 75 basis points of Fed hikes over the next six months. Goldman Sachs moved up its forecast for the next rate increase to October.

Broader inflation and commodity dynamics complicate the outlook: measured core inflation eased to 2.4%, but oil benchmarks Brent and WTI were trading above $100, U.S. diesel prices hit a record, and the 10-year Treasury yield was around 5%. The U.S. Dollar Index also climbed above 100 for the first time since late July, a stronger dollar that typically tightens conditions for risk assets. Market participants say the early optimism is notable but that the situation could mirror 2022 if tightening continues or other shocks emerge.

For investors watching altcoins and derivatives, CoinDesk noted additional analysis in its Crypto Markets Today newsletter and highlighted a calendar of upcoming events in its Crypto Week Ahead guide.