(Bloomberg) —
Bitcoin rose the most in three months before paring gains in volatile trading after the Federal Reserve signaled that it will begin raising interest rates soon.
The largest cryptocurrency by market value climbed as much as 6.4% to $38,927, before seeing the gain cut by about half. The increase was the most since Oct. 15. Other risk assets fluctuated in value after the conclusion of the central bank’s policy meeting.
Bitcoin dropped below $33,000 on Monday, more than 50% off its November peak, prompting some analysts to point to $30,000 as a key support level. That’s a threshold Bitcoin hasn’t breached since July.
Crypto’s correlation with equities strengthened in recent weeks as investors reacted to the prospect of tightening U.S. monetary policy by dumping high-priced tech stocks and digital tokens alike. Bitcoin’s moves in tandem with the Nasdaq 100 and the S&P 500 reached an all-time high this month, buoying confidence that one of the world’s more volatile major assets could become more predictable in future.
Other cryptocurrencies also advanced on Wednesday, with Ethereum up 10% compared to Bitcoin’s gain — a move that could signal a break in trading trends after Ether’s underperformance the past few months.
“Markets may have already priced in rate hikes,” Fadi Aboualfa, head of research at Copper.co, said in an email Wednesday. “With the latest market selloff, I would expect that the Fed softens its tone as to stem any further panic. Bitcoin will follow the general market sentiment at this point.”
The Fed Reserve signaled it will start raising interest rates “soon” and shrink its bond holdings after liftoff has begun, moving toward ending ultra-easy pandemic support to fight the hottest inflation in a generation.
“The overall sentiment in crypto is let’s try and settle in a range and do short term trading or find dislocations,” said Todd Morakis, co-founder of digital-finance product and service provider JST Capital, in an email Wednesday. “There are some bargain hunters here, but most of the people have been waiting for a time to invest in crypto and will continue to buy quality coins as the market moves down.”
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