Key Points:
- Bitcoin fell 2.2% to $42,701 following the Federal Reserve’s decision to maintain current interest rates.
- The Federal Open Market Committee held the federal funds rate at 5.25-5.50%, indicating economic caution.
- CoinShares’ James Butterfill notes Bitcoin’s increased response to interest rates is linked to traditional finance’s involvement in crypto via Bitcoin ETFs.
- Celsius exits Chapter 11 bankruptcy, Ripple’s Chris Larsen loses 213 million XRP to hacking, and DeFi protocols face $38.9 million in losses.
- Terraform Labs, associated with TerraClassicUSD, plans a Chapter 11 filing to challenge an SEC lawsuit regarding its crypto assets.
- Bitcoin’s market behaviour reflects its intricate relationship with traditional financial policies, attracting investor and regulatory attention.
Federal Reserve’s Decision Sends Ripples Through Crypto Market
In a significant turn of events, Bitcoin experienced a decline following the Federal Reserve’s announcement to maintain interest rates at their existing level. This marked the first instance of rate stability in 2024, resulting in a 2.2% drop in Bitcoin’s valuation, bringing it down to $42,701.
Federal Reserve’s Rate Decision
The Federal Open Market Committee (FOMC) decided to uphold the target range for the federal funds rate, keeping it steady at 5.25% to 5.50%. This decision, anticipated by most analysts, represents the Fed’s first rate pause this year and indicates a cautious approach to economic management in the current climate.
Bitcoin Stimulating the Crypto Market Reaction
James Butterfill, Head of Research at CoinShares, highlighted an intriguing development in the cryptocurrency landscape. As traditional financial institutions increasingly participate in the crypto market through multiple spot Bitcoin ETFs, Bitcoin’s responsiveness to interest rate decisions has magnified. Hence, this shift underscores Bitcoin’s growing sensitivity to interest rate-sensitive macroeconomic data, including payrolls and the Consumer Price Index (CPI). Bitcoin’s behaviour now aligns more closely with expectations from futures market interest rate projections.
Crypto Highlights
In the broader crypto sphere, Celsius, a cryptocurrency lending firm, has emerged from Chapter 11 bankruptcy. It is now poised to distribute over $3 billion in cryptocurrency and fiat to its creditors. Meanwhile, Ripple’s chairman, Chris Larsen, fell victim to a sophisticated hacker attack, resulting in the theft of 213 million XRP tokens, worth roughly $112.5 million. Additionally, decentralized finance (DeFi) protocols faced substantial losses totalling $38.9 million in January, stemming from various security breaches and scams.
Terraform Labs and the SEC
Terraform Labs, the company behind the now-defunct stablecoin TerraClassicUSD (USTC), announced plans to file for Chapter 11 bankruptcy protection. Therefore, this strategic move could support the company’s efforts to contest a lawsuit by the Securities and Exchange Commission (SEC), which challenges the classification of its crypto assets as securities. If successful, this appeal could significantly reduce the company’s liabilities and be a substantial step towards compensating its creditors.
Bitcoin’s Complex Relationship with Traditional Finance
The recent episode involving Bitcoin’s response to the Federal Reserve’s decision highlights the intricate relationship between the cryptocurrency market and traditional financial institutions. Consequently, Bitcoin’s volatility and its sensitivity to external factors such as central bank policy decisions have kept it at the centre of attention for investors and enthusiasts. Additionally, the cryptocurrency landscape is dynamic and continuously evolving. As a result, market participants are vigilantly observing the effects of economic developments and regulatory decisions on Bitcoin’s performance.
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