Crypto markets rallied on Wednesday and Thursday after the U.S. Federal Reserve raised its benchmark interest rate by 0.75% for the second time in two months in a widely telegraphed move.
Ether is up 10% to $1,616 in the past 24 hours in early morning trading U.K. time, according to data from The Defiant’s newly released charting tool. Bitcoin rose 7.4% to $22,897. Solana and Polkadot also rallied 16.5% and 11% respectively.
Repeated interest rate hikes this year by the Fed and other central banks may be working, the Fed said in announcing its decision.
“Recent indicators of spending and production have softened,” it said in a news release. Investors love the sound of that and the S&P 500 Index, the leading bellwether for stocks in the U.S., jumped 2.6% on Wednesday. Cryptocurrencies have been correlated with equities fas a risk asset or several quarters now, and investors have been buying and selling both types of assets in tandem.
Still Running Hot
But other metrics — namely the unemployment rate and, of course, the consumer price index — suggest an economy that is still running hot, and the Fed indicated more interest rate hikes would be forthcoming.
Such hikes increase the cost of borrowing in the broader economy. The cascading effect — less spending by businesses and consumers, less revenue for businesses, and, eventually, layoffs — is meant to cool demand for goods and services, easing upward pressure on prices.
Markets typically drop as interest rates rise. But observers had expected Wednesday’s 75 basis point hike, and were relieved the Fed did not take more aggressive action than forecast.
“The outlook hasn’t looked this good in a while,” Hal Press, the founder of crypto hedge fund North Rock Digital, tweeted. “We just got first signs of a real fed pivot, earnings are better than feared and there’s no more meetings for two months.”
Wednesday’s rally wasn’t limited to Layer 1 tokens. DeFi tokens surged after the Fed’s decision, according to data from The Defiant Terminal, with Lido’s LDO up 33%, AAVE up 15%, UNI up 13.7% and Curve’s CRV up 9.1%.
Layer 2 rollup Optimism’s OP is up 27% in the past day.
LDO, like ETH, has outperformed over the past couple of weeks as anticipation builds for The Merge, Ethereum’s long-awaited transition to the environmentally friendly proof-of-stake transaction consensus mechanism.
Updated on Thursday to report overnight price moves in cryptocurrencies.