Crypto prices will slide, 'but not by much,' if Fed hikes key rate by 25 bps: Bernstein

Markets are largely expecting the Federal Reserve to raise its benchmark lending rate by 25 basis points Wednesday afternoon, in a move that will spur cryptocurrency-market traders to take some profits given bitcoin ( BTC-USD ) and other major token's notable rallies year-to-date, Bernstein analyst Gautam Chhugani predicted in a note to clients. Bitcoin ( BTC-USD ), hovering around breakeven at $28.27K as of shortly before 9:30 a.m. ET, has surged nearly 70% since the start of 2023. Some say the tumult in the banking sector has served as a boon for crypto prices, with bitcoin ( BTC-USD ) up some 30% since Silicon Valley Bank was taken over by the FDIC on March 10. Chhugani drew a parallel between bitcoin's ( BTC-USD ) recent price action and "the pre-2020 days of Crypto, where it traded as a 'safe haven' and 'risk-off' asset." So, if the U.S. central bank meets market expectations and hikes by 25 bps, crypto prices will sell off, "but not by much because, such a move further hurts the banking system," he contended. A more fragile banking system "is bullish for crypto because it reinforces the case for 1. a decentralized 'store of value' money that cannot be devalued by a central bank (Both BTC and ETH) and 2. a case for decentralized financial systems that can be transparent, swift and robust in this fast, social digital age of bank runs and allows users to maintain control of their funds through self-custody," the note said. On the other hand, should the Fed pause its rate increases, investors might come to the conclusion that something is breaking in connection with financial stability. For crypto, that decision could be an "immediate positive impulse... but definitely, markets would wait to see what more is to come out of the banking situation." Another scenario that could play out, although unlikely, is cutting rates by 25 or 50 bps. "This acknowledges that the Fed went 'too fast and too far' in their rate hikes" to bring inflation down, Chhugani wrote. Crypto markets in turn could rally on the immediate risk-on impulse, he added. Here's a deep dive on how the Fed is facing a dilemma -- to hike or not -- in the wake of the banking turmoil . SA contributor Bitfreedom Research reckons that bitcoin has started "the next bull phase of its global adoption process."