Recap for MoonXBT Community AMA on How does Fed Meeting Affect the Crypto Market
Part 1: Introduction
Host: Hello, everyone. I am delighted to be here today to host our AMA. I want to welcome everyone who came here to participate in today’s AMA. As a token of our appreciation, we will reward 10 lucky participants. Good luck everyone!
Host: In this AMA, we will introduce the federal reserve system and how it affects the crypto market. Please welcome our guest and old friend, Elon!
Part 2: Questions and Answers.
Host: Now, let’s officially start this AMA, ladies and gentlemen, Elon from the MoonXBT product team.
Elon: Hello, guys. Nice to meet you. I am Elon, a senior product operator from MoonXBT. I am honored to join today’s AMA.
HOST: What Is A Fed Meeting?
Elon: Fed meetings always catch public attention, particularly since the rise in interest rates in the middle of 2022.
Crypto investments often see extra volatility when the Federal Reserve adjusts interest rates. So we must learn more about Fed meetings and how they affect the crypto market!
The Federal Reserve holds meetings (FOMC) at least eight times annually to review economic and financial conditions.
Fed meetings are called the Federal Open Market Committee meeting (FOMC). As monetary policy updates, the meetings review economic and financial conditions and assess price stability and employment.
The FOMC meets regularly, eight times a year, with additional meetings as necessary. Every three weeks before a meeting, they announce the meeting agenda for monetary policy.
HOST: The next question is What is the Fed?
Elon: Fed stands for Federal Reserve System, the U.S. central bank created by Congress to maintain the country’s economy.
The Federal Reserve System (Fed) is the central bank of the United States that promotes a monetary policy for a healthy U.S. economy. Congress created it on 23 December 1913, and President Woodrow Wilson signed it into law.
The Federal Reserve’s ultimate goal is to maintain a safe, stable, and flexible financial system.
HOST: What are the Fed’s responsibilities?
Elon: As I mentioned, the Fed is dedicated to the U.S.’s healthy economy and public benefits. It is therefore primarily tasked with five dual mandates:
1. Establish monetary policies to maximize employment and price stability, and adjust interest rates for the whole U.S. economic system.
2. Maintain the financial system by monitoring and minimizing associated risks.
3. Ensure safe and efficient payments to industries and government agencies that provide transactional services.
4. Promote and support financial institutions to be safe by closely monitoring the impact on the financial system.
5. Protect consumers and develop communities through research, analysis of consumer trends, and activities, and establishing consumer regulation.
HOST: What is the Policy Interest Rate?
Elon: The Policy Interest Rate is a tool to control economic growth by increasing or decreasing the interest rate.
The Policy Interest Rate is a financial tool to alter borrowing.
Borrowing and expenditure are likely to be implemented more due to lower interest rates. With fewer burdens on interest loans, people can access more credit and spend more on products and services to grow their business or employment outputs.
Conversely, increased interest rates will lead to less spending and lower demand for goods, slowing the economy from growing too quickly.
HOST: What Happens When Interest Rates Rise?
Elon: When the Federal Reserve acts to increase the rate, it immediately elevates short-term borrowing costs for financial institutions. Creating a ripple effect on virtually all other borrowing costs for companies and consumers in the economy.
The increased borrowing costs for financial institutions mean that these same financial institutions often increase the rates they charge their customers to borrow money. So increases affect individual consumers’ credit card and mortgage interest rates, especially if these loans carry a variable interest rate. When the interest rate for credit cards and mortgages increases, the available money consumers can spend decreases, meaning less money to invest in cryptocurrency or stocks.
HOST: How do the Fed meetings affect the crypto market?
Elon: We face a rising interest rate cycle. Generally speaking, aggressive rate hikes are not favorable for crypto prices.
Since the beginning of 2022, risky assets like stocks and crypto have been heavily correlated. Both have been moving in unison and struggled to gain momentum this year, as investors are pulling away in response to rising interest rates, surging inflation, and a potential recession.
Historic price charts show how bitcoin’s price dropped by at least 10% or more following the Fed meetings in March, May, and June.
Here’s a closer look:
Elon: Bitcoin’s price briefly declined during the week of March 13, the same week as the Fed’s second meeting this year, before climbing back up. The Fed approved a 0.25% rate hike, which was the first increase since 2018.
Elon: Bitcoin’s price spiked immediately after the Fed’s meeting on May 3 and 4 but began to decline significantly on May 6. The Fed in May approved a half percentage point hike and laid out a plan, starting in June, to reduce the central bank’s $9 trillion balance sheet.
Elon: Bitcoin’s price dipped as low as $17,500 following the Fed’s two-day meeting on June 14 and 15. The Fed raised interest rates by 0.75%.
While historical data doesn’t indicate how markets will react in the future, especially in the volatile and unpredictable crypto market, experts mostly agree that investors should expect new volatility following the Fed’s rate announcement period.
HOST: What Is the Best Investment In Crypto When Interest Rates Are Rising?
Elon: All macroeconomic situations are different. There is no single best investment suitable for all investment conditions. With that said, some investment strategies tend to perform better when interest rates are rising.
For example, when the Fed announces rising interest rates in the upcoming Fed meeting, you can choose to short BTC or ETH by trading Liquid Contracts and Perpetual Contracts on MoonXBT. You are more likely to get profits!
Part 3: Live Community Q&A
Host: We all now have a deep understanding of the Fed and its impact on the crypto market. Now let’s go on to the last segment: You may now start sending your questions.
Host: I would like to remind you guys of the current Trading Bonus pool, which is still at 100 USD Trading Bonus. We will select 10 questions to answer and award users with a Trading Bonus.
Q: In recent years, Crypto is a hot market. Do you think FED will impact more in the future?
A: we can’t say more all less. The FED has been always impacting. However, as the market value of the crypto market is bigger now, it can be affected more.
Q: After every recent meeting, interest rates always increase but why doesn’t the market just follow a trend?
A: This is a more responsible question, sometimes people’s expectations are important, when things are not as bad as they thought they would be, people may think it is a good outcome.
Q: Apart from interest rates, what other economic or monetary policies made by the Fed can affect the market
A: The Fed can buy U.S. Treasuries directly, which is also an operation that affects liquidity
Q: How will higher interest rates affect crypto and commodities markets?
A: Certainly since interest rates are higher, less money will be into the crypto market. we have to get prepared for it.
Q: Why is the fed meeting so influential on the movement of the crypto market? As we said A: before, the FED raises interest meaning less money to invest in cryptocurrency or stocks. price will trend down.