'Rate hikes are bullish' - why cryptocurrencies soared today in the face of bad news

Crypto markets have been surging since the announcement of a 75 basis point hike in U.S. interest rates, with experts explaining that the market may have initially braced for worse.

On July 27, after the Federal Open Market Committee (FOMC) decided to raise interest rates again, the price of Bitcoin rose by about 8% to around $22,500. Prices of many other top crypto assets also rose sharply, with ETH, DOT, and MATIC all seeing notable double-digit gains over the past 24 hours.

Mati Greenspan, founder and chief executive of Quantum Economics, jokingly questioned on Twitter on Wednesday whether this was a "bullish rate hike."

In an interview with Cointelegraph, Greenspan noted that investors are clearly expecting worse and said there is nothing unusual about the recent rally.

"Markets like to move higher on Fed day, even if they're hawkish. Powell is particularly good at delivering bad news. Clearly, investors are expecting worse."

The Fed tries to tame inflation by raising interest rates, which is usually associated with a drop in investment activity across markets.

Opinions were mixed, however, on whether the latest rally had enough momentum to sustain the upside, or whether a sharp pullback would ensue before the market began to fully recover.

Pav Hundal, an analyst at Australian cryptocurrency exchange Swyftx, told Cointelegraph that the firm was “surprised by the strong reaction to yesterday’s rate hike,” as the underlying macro outlook still appears to be up in the air.

"Whenever we see a rate hike, the Fed says one thing and the market seems to hear another. In June, the Fed signaled that a big rate hike would be 'uncommon,' and this time Jay Powell suggested the pace of rate hikes may be 'slower'."

He added: "The best gauge of what's ahead is the underlying economic data and, at least for now, some inflationary pressures appear to be easing, with natural gas prices, futures for staples like corn and wheat, and some transportation costs all falling. "

Hundal went on to note that trading volume on the Swyftx exchange jumped 100% in early trading following the news, suggesting that “a lot of people clearly see value in the current market price.”

The analyst emphasized that a broader bearish or bullish trend may not be too apparent until the release of key U.S. data in the coming days related to the performance of gross domestic product (GDP), which could signal whether the U.S. is officially in recession :

“The good news is that we won’t have to wait long to see what happens to the crypto market after any initial volatility wears off. The U.S. is about to release its GDP data, which will be a huge stress test. Any negative sentiment could erase the recent increase."

“But if the macro outlook starts to show signs of recovery, we could see crypto stabilize at $1 trillion and rebound from there,” he added.