Why Did Crypto Prices Spike When US GDP Q2 -0.9% And Fed Raised Interest Rates?

The crypto market has surged since the US Federal Reserve (Fed) announced a 75 basis point interest rate hike and the U.S. Bureau of Economic Analysis (BEA) released data that GDP fell 0.9% in Q2. The crypto markets could be bracing for much worse, experts explain.

According to data released by the BEA, the country’s second-quarter annual economic growth came in at -0.9%, lower than economists’ expectations of a 0.5% increase after Gross Domestic Product (GDP) unexpectedly plummeted 1.6% in the first quarter of the year.

“The decrease in real GDP reflected decreases in private inventory investment, residential fixed investment, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by increases in exports and personal consumption expenditures (PCE).”

The US economy is currently in a technical recession, experiencing two consecutive quarters of recession. The National Bureau of Economic Research, an academic organization that determines whether the US will enter a recession based on a range of factors, is scheduled to review data and the state of the economy over the next week. US Treasury Secretary, Janet Yellen, will also hold a conference today.

On July 27, the price of Bitcoin (BTC) rallied more than 10%, establishing a local top at $23,480 following the decision of the US Federal Open Market Committee (FOMC) to continue raising interest rates. Many other top assets are also bullish, with Ether (ETH), Polkadot (DOT), and Polygon (MATIC) all posting double-digit gains over the past 24 hours.

Quantum Economics founder and CEO Mati Greenspan jokingly asked if this was a “bullish rate hike.” Greenspan notes that investors are expecting worse and think this latest rate hike is nothing out of the ordinary.

A retracement of market investment activity often accompanies the Fed’s efforts to contain inflation by raising interest rates.

However, the community has mixed opinions on whether the latest pump can sustain the upside or it will retrace before starting a full recovery.

Pav Hundal, an analyst at Australian crypto exchange Swyftx, said that the firm was “surprised by the market’s strong reaction to this rate hike,” given the underlying macro backdrop version is still pretty bleak.

“Every time the interest rate rises, the Fed’s predictions diverge from reality. The Fed suggested large rate increases would be unusual, the Fed suggested in June, and Jay Powell hinted that the rate of increases would slow down.”

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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