Bitcoin recovers $29,000, boosted by the Fed and PacWest´s fall

Digital assets initially greeted the US central bank's new 25 basis point hike with some skepticism and mixed signals, but subsequent statements by Chairman Jerome Powell and lingering fears in the banking sector, spurred by Pacwest´s fall, turned the tide. The steep drop in U.S. bond yields was also a positive influence; traditionally, the correlation of these assets and cryptocurrencies is negative, as when one goes down, the other goes up and vice versa.

During the press conference, Powell stated that the Fed was widely opening the door to a "possible" pause in its tightening cycle. However, the central banker acknowledged that such a decision is neither final nor certain and that rates will not be cut in 2023 if the baseline scenario holds.

In this sense, analysts at Oxford Economics believe that "there is a risk" that this pause is temporary and the market seems to have interpreted it in the same way. "The stock market in the US didn’t perform according to the textbook trade, and investors are confused about why we have not seen a stellar rally," commented Naeem Aslam, chief investment officer at Zaye Capital Markets.

The expert believes that the reason for this behavior is that the threat of a possible recession is "serious," especially when there is a chance of another regional bank "falling into the hands of Wall Street giants." He also noted that the market does not believe the sector is as "stable and robust" as the Fed and Treasury are stating.

"The reality is that rates in the US are at a level that is causing enormous pain, and inflation continues to remain sticky. Now that the Fed has paused the interest rate hike cycle, what will happen to inflation? Surely, if we do not see any further improvement in the inflation readings or, even worse, if we see inflation ticking higher as energy prices are still well above their COVID or pre-war era, we could be in a lot of trouble," Aslam concluded.

On the other hand, analysts highlight that the U.S. employment report, to be released tomorrow, on Friday, will also be another catalyst for the price of cryptocurrencies. The report from the consulting firmADP, which was released this past Wednesday, estimates that the world's first economy created 296,000 jobs in April, many more than the consensus forecast. On the other hand, another bank failure could boost the price of digital assets as happened during the failures of Silicon Valley Bank and Signature Bank in March.

In the rest of the altcoins market, there have been widespread rises among the major cryptos. Ripple (XRP) increases 0.6%, Solana (SOL) and Cardano (ADA) soar 2% and Polygon (MATIC), Polkadot (DOT) and Dogecoin (DOGE) gain 1%.