Bitcoin (BTC) and other cryptocurrencies sustained a considerable blow as the U.S. Federal Reserve’s decision to raise interest rates resulted in the liquidation of hundreds of millions of dollars from the markets. 

The collapse of multiple banks has already led to an increase in liquidity, causing a reversal of a significant portion of the quantitative tightening measures in just one week.

Now, market intelligence firm Coinglass reported that in just the past 24 hours, nearly $360 million in crypto assets were sold off. The impact of the Fed’s move reverberated throughout the digital currency world, leaving investors and traders scrambling to adjust their portfolios.

Fed Rate Hike Triggers Bitcoin Liquidation

The Federal Reserve’s decision to raise interest rates by 25 basis points on Wednesday in an attempt to counter inflation is believed to have triggered the liquidation of cryptocurrency assets. 

This comes amid a global banking crisis that has unfolded in recent weeks, which had driven the primary digital currency to a nine-month peak above $28,000. On the day of the second FOMC meeting for the year, Bitcoin’s value climbed even higher, nearly touching $29,000. 

However, when news of the rate hike broke, the price of Bitcoin briefly fell to the high $26,000 range. Despite this setback, the cryptocurrency has since rebounded and is currently trading at $28,309 at the time of writing, data from crypto market tracker CoinMarketCap shows.

Most Notable Crypto Selloffs

Liquidation in cryptocurrency helps to minimize risk and stabilize markets by ensuring that traders meet their financial obligations. When a trader uses leverage to invest in cryptocurrency, they borrow funds from a broker or exchange to magnify their profits. 

However, this also exposes them to greater risk as their positions can be automatically liquidated if their losses exceed their margin. In other cases, a trader may choose to liquidate their assets voluntarily in response to market conditions or to free up funds for other investments.

Digital currency traders sold off nearly $33 million worth of Bitcoin and lost nearly $19 million in Ethereum (ETH). Litecoin (LTC) and XRP also saw over $1 million in sales each, with $2.11 million and $1.22 million liquidated, respectively. 

A major driver of depositor flight is people moving money from low interest savings accounts to high interest money market (Treasury Bill) accounts.

This foolish rate hike will worsen depositor flight.

— Elon Musk (@elonmusk) March 22, 2023

Despite calls from influential figures, such as Elon Musk, who supports Dogecoin, for the Federal Reserve to abandon its interest rate-hiking approach, the central bank disregarded their advice and raised the key interest rates by an additional 25 basis points, following developments involving Silicon Valley Bank and other banking entities.

-Featured image from KITCO