Fed Rate Hike... Why Crypto Prices Rose Despite Tightening?

The Federal Reserve raised interest rates by 0.25 percentage points on Wednesday, marking the first increase since 2023. Bitcoin (BTC) rose despite the move, challenging the long-held assumption that tight monetary policy harms risk assets.

Markets had already priced in the decision, with short-term rate futures indicating a 92.7% probability of a hike hours before the Fed announcement. BTC dipped to around $75,350 ahead of the decision but surged past $76,100 within minutes of the release, closing near $76,138 after U.S. market hours.

Research on past Fed cycles shows investors often adjust positions before announcements and show little reaction to the actual outcome, sometimes even pushing prices higher. Scott Melker, host of Yahoo Finance's Daily Wolf, argued that a one-time rate hike could stabilize long-term markets if Chair Kevin Warsh avoids signaling prolonged tightening.

The Fed's latest projections saw 16 out of 18 policymakers expecting further increases this year, up from nine in June. However, the decision passed unanimously at 12-0 with a measured tone. Gold prices also rose sharply to $4,360 before settling between $4,280 and $4,300, indicating short-term profit-taking rather than fear.

Crypto's price movements were influenced by more than just the Fed. Bitcoin and XRP had already fallen due to a failed Senate CLARITY Act proposal, which aimed to establish a federal regulator for digital assets. Over $300 million in leveraged positions were liquidated as a result, followed by $592 million in outflows from Bitcoin and Ethereum ETFs on September 15—the largest single-day outflow in months.

Top 10 cryptocurrencies showed mixed performance: ZEC surged over 20% for seven days while XRP declined. This highlights how individual altcoin issues can overshadow broader market trends. With 16 of 18 Fed officials expecting further hikes, the next major test for crypto may be whether the CLARITY Act discussion resumes before the next Fed meeting.