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Bitcoin slides after Fed signals preparation to 'increase the pace of rate hikes'

Federal Reserve Chair Jerome H. Powell testifies before a U.S. Senate Banking, Housing, and Urban Affairs Committee hearing on
Federal Reserve chair Jerome Powell explained that the Federal Reserve is likely to raise its key interest rate higher than had been anticipated. Photo: Kevin Lamarque/Reuters

Bitcoin's price declined by nearly 2% in the past 24 hours after US Federal Reserve Chair Jerome Powell said that inflation remained problematic.

In prepared comments before the US Senate Banking Committee on Tuesday, Powell explained that the Federal Reserve will likely need to raise its key interest rate higher than had been anticipated.

Investors reacted with caution to the signal from the Fed, with US stock indexes closing sharply lower on Tuesday. The S&P 500 (^GSPC) fell 1.5% and the Nasdaq Composite (^IXIC) lost almost 1.3%.

Read more: Bitcoin down 5% ahead of Mt Gox payouts

The cryptocurrency market reinforced its tendency to march in lock step with equities by posting a market cap decline of 1.8%, down to $1.05tn, according to data from Coingecko.

The cause of the market route being Powell's prepared testimony to the US Senate banking committee, which stated: “As I mentioned, the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,”

He added, “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

In response, (BTC-USD) is down 2% in the day to $21,977, while ether (ETH-USD) has fallen 1.2% to $1,551.

Read more: Crypto live prices

The Fed has raised its benchmark interest rate eight times over the past year, most recently a quarter percentage point increase early last month that took the overnight borrowing rate to a target range of 4.5% to 4.75%.

Higher interest rates encourage investors to save in fiat currency such as the dollar, and a retreat from high risk assets such as bitcoin.

Watch: It's too late' to use crypto as hedge against collapsing fiat currencies, says BitBoy Crypto | The Crypto Mile

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