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Ether has hugely outperformed bitcoin since both cryptocurrencies formed a bottom in June 2022. Ether's superior gains have come as investors anticipate a major upgrade to the ethereum blockchain called "the merge."

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Cryptocurrencies fell on Wednesday as investors weighed the latest policy decision from the Federal Reserve.

Bitcoin slid 4.8% to $26,895.88, according to Coin Metrics. Ether fell 4.1% to $1,726.58, following a big move higher on Tuesday.

The Fed enacted a quarter percentage point interest rate increase at the conclusion of its latest policy meeting, expressing caution about the recent banking crisis and indicating that hikes are nearing an end. Fed projections call for just one more hike this year.

A 25 basis point increase was widely anticipated. The decision makes it the ninth consecutive interest rate hike and the second quarter-point increase in a row after a series of bigger rate hikes were implemented throughout 2022.

"The hope was that the long-awaited dovish tone from the Fed would finally arrive in the midst of this banking crisis. Those hopes were dashed by Powell's comments that rate hikes could continue as long as things continued to stabilize, weakening some of the momentum that has been leading crypto's rise in recent days," said Michael Safai at the crypto trading firm Dexterity Capital.

"A lot of what has driven the latest bitcoin rally the ongoing weakness in the banking system and the potential for increases in central bank balance sheets hasn't disappeared completely," he added. "This could provide a floor for cryptocurrencies once the broader institutional reaction to the Fed settles down."

See Chart...

Bitcoin (BTC) on Wednesday

Still, comments by Fed Chair Jerome Powell in the press conference following the meeting were more hawkish than the market expected, although he "poured cold water on fears over a credit crunch and deflation emanating from the banking crisis," according to Michael Rinko, venture associate at AscendEx.

Comments from U.S. Treasury Secretary Janet Yellen that she isn't considering expanding the FDIC's insurance limit of $250,000 also spooked investors, he added.

Bitcoin's volatility has come back this month, sending the cryptocurrency's price up more than 20% for the month and bringing its year-to-date gains to more than 70%. At the same time, its correlation with stocks has broken, after trading in lockstep with equities for about two years. Nevertheless, macroeconomic factors are still the biggest drivers of bitcoin's price.

"I think a lot of traders will be deflated by bitcoin's retreat towards $25,000, since the markets were really hoping to break past the symbolic $30,000 mark," said Safai. "This will probably sap some of the momentum behind crypto prices in the short term, but that could easily change if the banking sector continues to show weakness."

Chart analysts have been observing $25,200 as a key level for bitcoin, and looking for two consecutive weekly closes above that level to determine the strength of the recent rally.

"For now, volatility is spiking again, bringing some much-needed volume and energy to the markets," he added.

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Cryptocurrencies fall as investors weigh the Fed's latest rate decision, bitcoin slides toward $25,000 - CNBC