$Bitcoin(BTC.CC)$ traded higher and hovered just under the psychologically important $40,000 mark on Wednesday evening as the global cryptocurrency market cap shot up 5.5% to $1.8 trillion.

Why It Matters: The Federal Reserve voted unanimously to increase target fund rates by 0.5% on Wednesday. This is the first such rate hike since the turn of the millennium. The U.S. central bank will also start reducing the size of its balance sheet beginning June 1. 

Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures." 

- said the Federal Reserve in a statement.

Investor sentiment was boosted during the Federal Reserve Chair Jerome Powell's news conference where he made it known that the bank was "not actively considering" a 75-basis point increase, according to a CNBC report.

The dollar fell to a one-week low after Powell's comments, with the dollar index, a measure of the greenback's strength against six of its peers, falling as low as 102.48, reported Reuters.

The improvement in sentiment on the cryptocurrency side was evident on Alternative.me's "Crypto Fear & Greed Index" which flashed "Fear" at press time. The index indicated "Extreme Fear" 24-hours prior. 

OANDA senior market analyst Edward Moya said Powell has indicated that he can halt inflation without resorting to drastic measures.

U.S. stocks surged after Fed Chair Powell signaled he can slow inflation without triggering a recession. It seems risky assets can rally now that Wall Street has fully priced in the rest of the year's rate hikes by the Fed." 

- said Moya, in a note seen by Benzinga.

Cryptocurrency trader Michaël van de Poppe said the events of Wednesday were the "classic example" of "sell the rumor, buy the news."

"Prices overreacting to the downside out of fear, and then the actual event takes place and the reaction says the opposite."

Justin Bennett, a cryptocurrency trader, warned that Bitcoin breaking out could be deceptive.

I wouldn't be surprised to see this turn into a fakeout. It's not a move I would trust." 

- said Bennett on Twitter.

Chartist Ali Martinez said the number of new addresses created on BTC's network as its price dropped from $43,000 to $37,5000 recently rose to 422,000.

It suggests an increase in user adoption, which can result in a bullish breakout." 

- tweeted Martinez.