The price of bitcoin climbed about 6% Wednesday after the Federal Reserve raised rates by half a point —the biggest hike in about 20 years — as expected.
Bitcoin began climbing ahead of the end of the Federal Open Market Committee's meeting. The half-point hike was widely expected by many. Its surge accelerated after Fed Chair Jerome Powell ruled out the possibility of a 75-basis-point increase.
"A 75-basis-point increase is not something that the committee is actively considering," Powell said. "I think expectations are that we'll start to see inflation, you know, flattening out."
At one point amid Powell's afternoon remarks, bitcoin climbed as high as $40,002.75. Crypto assets across the market rose with it.
"Any FOMC guidance that does not include a 0.75 percent interest rate increase would be bullish for both crypto and equities," said Nick Mancini, director of research at crypto sentiment analytics platform Trade The Chain. "We believe that the market has priced in continued hikes of 0.25% to 0.50% moving forward for 2022. This gives the market certainty, which, in turn, breeds bullish price action."
Joe Orsini, director of research at Eaglebrook Advisors, noted that with inflation at 40-year highs, the market expected the most aggressive tightening schedule in the same amount of time.
"These expectations set up for a 'not all that bad' rally should the Fed turn less hawkish than feared," he told CNBC. "The first sign of this was today when Powell ruled out a 75-basis-point hike — this kicked off the rally we're seeing this afternoon."
Bitcoin has struggled to find its way back to its all-time high of about $68,000 from November as risk assets have been hit all year by rising inflation, war in Ukraine and tighter Fed policy. However, the cryptocurrency's infamous volatility has come down in the near term — well below shares of some tech darlings such as Netflix, PayPal and Meta Platforms — as it has traded in a tight range since the beginning of 2022, between roughly $38,000 and $42,000.
"If there are signs that inflation is peaking, the Fed has some room to show patience," Orsini added. "A less aggressive tightening policy would be bullish for bitcoin, ether and digital assets, which continue to bounce harder than traditional equities."
The bounce in bitcoin coincided with a rally in the broader equities market. Ultimately, the S&P 500 closed 2.9% higher, while the Nasdaq gained more than 3%. The Dow Jones Industrial Average added over 932 points.
Bitcoin, which continues to lead the price action across the crypto market, also remains highly correlated with stock market moves.
"Digital asset and traditional market correlations remain significant," said Josh Olszewicz, head of research at digital assets investment manager Valkyrie Funds. "DXY and the 10-year yield reversed sharply intraday, while the S&P 500 and Nasdaq saw a modest bullish bump with bitcoin up nearly 3.5% from intraday lows."