Bitcoin strengthened slightly to trade above $76,500 in early European trade, reversing initial losses after the Federal Reserve raised interest rates for the first time in three years.
The cryptocurrency last traded up 0.7% at $76,684.83, around the same level just before the Fed's quarter-point rate hike announcement and Chairman Kevin Warsh's hawkish tone in the following press conference. Bitcoin was trading at a near four-week low earlier Wednesday after the U.S. Senate's rejection of a crypto-friendly bill a day earlier.
Though a quarter-point rate hike was widely expected, crypto investors were wary of the likelihood of further policy tightening, said Ryan Lee, chief analyst at crypto exchange Bitget.
Most Fed officials penciled in one more rate increase this year. Riskier assets like digital coins typically struggle in high-rate environments.
"The question now is whether this is a one-off adjustment or the beginning of a broader tightening cycle. For Bitcoin, I would be watching the 10-year Treasury yield, the dollar and ETF flows closely," Lee said.
Bitcoin exchange-traded products saw net outflows of $295.90 million Wednesday, according to crypto data provider CoinGlass. The outflows suggest a dampening in demand from institutional investors as a result of tighter financial conditions, Lee said.
The Fed hike also signaled the central bank's credibility on fighting inflation--a dynamic negative for bitcoin, given some investors' view of the digital asset as a hedge against dollar volatility.
"I see bitcoin as a way to store some of your wealth in a system that has no central authority," said Geoff Kendrick, head of digital assets research at Standard Chartered. "If you're worried about the independence of the Fed, this is a reason to have some money in bitcoin."
The Fed decision added to a difficult week for bitcoin, following the failure of the crypto-friendly Clarity Act to pass the Senate Tuesday. Bitcoin opened the trading week at around $77,500 Monday morning, before falling steadily through the last two trading days.
Despite recent losses, Bitcoin remains up more than 20% over the last month following the mid-August rally in cryptocurrencies in which the coin jumped from an August low of $62,414 to an early September high of over $82,000.