September 26, 2022

Bitcoin Jumps as Fed Signals Greenlight, Funding Rates Cool Off

2 min read

After an early-morning downturn as the crypto market waited in anticipation for the Fed meeting, Bitcoin (BTC) costs bounced more than 7% to $58,000 from an intraday low of $54,000. The wider crypto market welcomed Fed Chair Jerome Powell’s words as he reinstated that rates of interest would remain at current levels until 2023. Together With BTC, Ethereum (ETH) and other altcoins rallied to pare this past weekend’s losses.

Federal Reserve Maintains Near-Zero Interest Rates; What that Means for Bitcoin As expected, the Federal Open Market Committee (FOMC) voted to keep interest rates at low levels, while continuing repo operations of at least $120 billion bond purchases on a monthly basis. In the conference, the committee likewise anticipated core inflation levels to rise, forecasting a long-run inflation rate of 2%. The financial recovery from the pandemic and expansion of the money supply are two significant aspects that will influence inflationary forces in the near future.

Following the FOMC meeting, the United States dollar pulled away as Treasury yields dropped. This is favorable news for Bitcoin, as financiers and organizations will rely on the digital asset as a hedge from inflation and the dollar. As the Federal Reserve opts to not use contractionary monetary policy by raising interest rates, the dollar will likely continue to lose ground. Corporations such as MicroStrategy, Square, and Tesla have actually opted for Bitcoin on their balance sheets in anticipation of rising inflation. It’s most likely that more corporations will look to participate in.

Funding Rates Reset: Is the Bottom In?

In other news, continuous futures financing rates for Bitcoin plunged to 0.001% from 0.068% on Monday in a “full reset”, and has ever since decently increased to 0.02%.

Unique to perpetual futures contracts, financing rates are set by the market and differ depending on long and short demand. Historically, funding rates have actually tended to correlate with market sentiment. When the marketplace is bullish or bearish, financing rates tend to be favorable or negative, respectively.

A low favorable financing rate normally shows that the bottom is near, and Bitcoin may very well be due for a bounce-back to current highs. However, if funding rates continue to tread down and get in the unfavorable area, a bearish belief might be embeding in.

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