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Bitcoin Price Drops After Federal Reserve Chair Warns of Credit Crunch

Bitcoin Price Drops After Federal Reserve Chair Warns of Credit Crunch

Concerns have risen regarding a credit crunch resulting from significant tightening of lending standards amidst the banking crisis.

During Wednesday’s press conference, Federal Reserve Chair Jerome Powell noted that financial conditions may have tightened more than what U.S. benchmark indexes suggest.

When asked about the circumstances that would prompt an interest rate cut, particularly if credit conditions continue to tighten, Powell emphasized that traditional indexes primarily focus on rates and equities and do not capture lending conditions.

Powell acknowledged that sustained tighter lending conditions could have a significant macroeconomic impact that would be taken into account when making policy decisions.

However, he stated that rate cuts are not the Fed’s base case, and the central bank will evaluate the extent and duration of any potential impact before taking any action.

At the time of writing Bitcoin is trading at $27,120 after a 3.6% decrease in the past 24 hours. This pullback came after Bitcoin had surged almost 50% in less than two weeks, following the collapse of three regional U.S. banks and the Fed’s announcement of an emergency loan program to support depositors and the entire banking system.

READ MORE: Bitcoin’s Potential Reaction to the Federal Reserve’s Decision on Interest Rates

The decline occurred after the Federal Reserve raised its key interest rate by 0.25%, as expected. Fed Chairman Jerome Powell suggested that the central bank was unlikely to reduce the rate further this year.

According to Castle Funds’ Chief Investment Officer, Peter Eberle, Bitcoin surged as investors sought diversification from bank deposits, and the Fed injected liquidity into the financial system to ease stress in the banking industry. However, Eberle noted that many investors continue to trade Bitcoin as a speculative asset.

Alexander Stefanov

Reporter at CoinsPress

Alex is an experienced finance journalist and a cryptocurrency and blockchain enthusiast. With over five years of experience covering the industry, he deeply understands the complex and constantly evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His passionate approach allows him to break down complex ideas into accessible and insightful content. Follow up on his content to be up to date with the most important trends and topics - stay ahead of the curve with CoinsPress.

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