First Mover Asia: Events in China, India Have Also Weighed on Crypto Prices

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Good morning. Here’s what’s happening:

Prices: Cryptos soar following the U.S. central bank rate hike.

Insights: Bitcoin and other cryptos show the impact of events in Asia.

Technician's take: Expect choppy price action within the current trading range.

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And on the fourth day of May, there was sunshine for bitcoin and other cryptos.

The largest cryptocurrency by market capitalization was recently trading at about $39,600, up over 5%. Ether, the second-largest crypto by market cap, was changing hands over $2,930, a 6% gain. Other major cryptos were even more in the green with ADA and AVAX rising over 16% and 11%, respectively, and SOL jumping 8%.

Crypto's upswing, which broke nearly a week of declines, followed the U.S. central bank's long-awaited, half-point interest rate hike, the most significant step so far this year in its quest to tame rising inflation. The Federal Reserve also said that it would reduce its $9 trillion asset portfolio of mortgage and Treasury securities. Other central banks have also raised rates in recent months, although not as aggressively.

Investors have been fearful that the Fed's newfound hawkishness would send the economy into recession. The rate increase was the largest since the bank raised the rate a half-point in 2000.

Growth has already slowed over the first part of the year. U.S. gross domestic product declined 1.4% on an annualized basis during the first quarter. But in remarks Wednesday, Fed Chair Jerome Powell indicated that the Fed could reduce the monetary stimulus that fueled the country's strong growth last year while ensuring the sort of soft economic landing that would comfort investors. Powell described the economy as strong, a point underscored by recent, strong employment numbers, and ruled out even larger rate increases, all of which buoyed equity markets.

The tech-heavy Nasdaq rose over 3% and the S&P 500 and Dow Jones Industrial Average jumped nearly as much.

Despite Wednesday's spike, bitcoin has spent 2022 in the doldrums, falling 17% alone in April. May, a historically strong month for crypto, had shown little pep till now as investors continued digesting a toxic combination of sinking economic indicators and global uncertainty, largely fueled by Russia's unprovoked invasion of Ukraine.

Dan Young, head of partnerships at blockchain analytics firm Elementus noted ongoing concerns about inflation; disappointing rates of crypto adoption, particularly in El Salvador, which made bitcoin legal tender last year; "high-profile protocol breaches that have highlighted vulnerabilities and increased regulatory scrutiny of miners. Yet Young said that "the space has shown to be incredibly resilient."

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