Fed rate hike
Fed rate hike. Bitcoin (BTC-USD) is currently trading at $41,000 per unit, but it is still 8 percent behind. It was a month ago and 41 percent below its all-time high of $69,000 per unit reached in November. Ether (ETH-USD), the second most valuable cryptocurrency in terms of market capitalization. It is currently trading at $2,747 per unit, up from $2,615 earlier in the day. Despite this, the stock is still down 12 percent from where it was a month ago and 43 percent from its November 2021 high.
This follows a volatile seven-day trading period, during which investors considered a 40-year high inflation. Reading in the United States against possible geopolitical outcomes following Russia’s invasion of Ukraine in late February. Which prompted stringent economic sanctions from NATO allies and sent commodity prices higher.
Investors are now faced with even more bad news. The Federal Reserve has indicated that it would hike interest rates up to six more times this year. According to the so-called dot plot, which tracks the expectations of the governing members in real time.
Pressures on prices
Pressures on prices. As measured by Coinmarketcap over the previous 24 hours, the total market capitalization of cryptocurrency has varied by around 2.4 percent (from $1.8 trillion to $1.77 trillion) from $1.8 trillion to $1.77 trillion.
According to Ylann Guez, a senior trader with the Tel Aviv-based trading firm Efficient Frontier, short sellers initially began taking profits on Tuesday in expectation of a “less hawkish” monetary tightening agenda in the future.
Guez predicted that rising interest rates would “increase pressure on pricing” in the future, and that crypto investors should prepare for this.
According to Chris Matta, president of crypto asset manager 3iQ US, “risk assets continue to be volatile, with the result that there will likely be continued uncertainty over the next few months.” “Crypto fits into that category as we continue to operate in a more risk-averse climate.”
So far, cryptocurrency investors in 2022 have had a difficult time navigating the market. Since reaching a record of about $3 trillion in total market capitalization, the asset class has seen its value collapse by more than $1.1 trillion.
The Federal Reserve will make a decision soon
In terms of global importance, the Federal Reserve is the most important entity because of its capacity to manufacture money and manipulate interest rates.
For the first time in its history, the bank adopted the most expansionary monetary policy framework in order to defend the American economy in 2020.
It lowered interest rates to historic lows and then expanded its balance sheet through quantitative easing (QE). The bank’s balance sheet now exceeds $9 trillion.
The financial market responded to this policy by increasing high-risk assets. High-growth tech stocks hit new highs. The same was true for Bitcoin and Ethereum.
However, the Fed’s policy shift has caused a 40% drop in Bitcoin’s price. It has already delayed asset acquisitions.
The Fed’s policy meeting will now end on Wednesday. Analysts estimate a 25 basis point increase. Some predict a 0.50 percent rate hike to combat growing inflation.
Question is whether Fed rate hikes will further devalue Bitcoin. BTC and other risky assets, according to some analysts, will continue under pressure.
However, some analysts believe Bitcoin will begin to recover after rate hikes because the market has already priced in the situation. Besides, the Fed will raise rates.