Traders Short Altcoins As Fed Chair Powell Warns on Inflation

QUICK TAKES: 

• US Fed Chair Jerome Powell has confirmed an incoming rise in interest rates that might not be reversed soon 
• Both stocks and cryptocurrencies tumbled sharply on the slowing growth rate prediction  
• Futures crypto traders are increasingly shorting altcoins as negative sentiments flood the market – indicating a price rebound over the weekend 

The Bitcoin and altcoins market remains under the constant threat of macroeconomic effects wobbling its position. Ever since the asset class became correlated with stock indices like the NASDAQ, both markets have been moving in tandem with the words of the US Federal Reserve. The country’s rising inflation has further compounded these risks after reaching a four-decade high. The latest trigger came from Fed Chair Jerome Powell, who recently warned investors of a tough road ahead.

The Chair confirmed on Friday that the central bank must keep raising interest rates to bring inflation under control. This is despite a relatively positive Consumer Price Index (CPI) released earlier this month. He stressed that the Fed must impose further interest rate hikes in the coming months. Moreover, these rates could be kept high “for some time”.

Powell’s hawkish statements about a “sustained period of below-trend growth” sent US stocks in a tailwind as markets tumbled 3%. In fact, the eight-minute speech alone caused $12 billion to be wiped off billionaires Elon Musk and Jeff Bezos’ wealth.

The cryptocurrency market followed suit, with the total market cap falling 5.3% in the preceding day. The top digital asset Bitcoin dropped 5.4% during this time and was last changing hands for $20,268 – the lowest it has gone in over a month. Ether also saw a depreciation of 9.2% and was trading for $1,508 at press time despite the anticipation surrounding its upcoming Merge.

Altcoins Face Fed’s Brunt

The biggest casualties during such events are always altcoins, with most of them posting heavy losses on Friday. Almost all of them could be noted trading in the red, as traders rushed to more safe haven crypto assets like Bitcoin.

Source: CoinGecko

Santiment reported that the negative sentiment has also trickled into the Futures crypto market as short trades flooded in last night. Here too, altcoins are suffering more with traders extensively shorting smaller-cap cryptocurrencies. Opportunists are betting against these digital assets’ prices as the wobbly US economy has left them fearful of further price drops.

Source: Santiment/Twitter

The Average Exchange Funding Rates for altcoins dropped sharply yesterday, according to Santiment data. This indicates an attempt by crypto derivatives exchanges to close in the gap between perpetual and spot prices and incentivize short closing as traders increasingly shorted the markets.

However, the increased altcoin shorting also indicates that a price reversal may be in the books for this weekend. Crypto asset prices typically move in the opposite direction of these funding rates. Extensive shorting and consequently lower funding rates could signal an incoming price rebound for altcoins.