The U.S. Fed rate hike mission this year has dealt a heavy blow on Bitcoin, ethereum, other major cryptocurrencies.
According to economists, it is meant to drain the system of liquidity, with high-growth tech stocks and cryptocurrencies leading market losses.
The broader crypto market is mostly smothered in crimson, with top crypto Bitcoin (BTC) losing its grip on the critical $19,000 handle, and trading at $18,872, down 6.5% in the last seven days.
The price of Bitcoin, which is 70% lower than its all-time high from late 2021, has consistently failed to maintain its position above $20,000.
Ethereum, the world’s biggest altcoin by market value, is trading at $1,325, losing 16% of its value in the last week.
Following a dire warning from U.S. Securities and Exchange Commission head Gary Gensler, the price of ETH has plummeted.
Image: Coincu News
Crypto Market Braces For Fed Rate Hike
Now, Bitcoin, Ethereum, and the crypto market as a whole are bracing for the central bank to hurl a “wrecking ball” that could further crush values as the Federal Reserve ramps up its ongoing fight against inflation.
Caleb Tucker, director of portfolio strategy for Merit Financial Advisors in the Atlanta region, has this to say:
“The stock and cryptocurrency markets are forward-looking, so the mere anticipation of increasing interest rates has had a big impact.”
As the Fed embarks on a two-day policy meeting on Tuesday, all eyes are on the central bank, as it is largely anticipated that officials will raise short-term interest rates by three-quarters of a percentage point at the conclusion of their meeting on Wednesday.
Andrew Patterson, senior international economist at Vanguard Group, told Yahoo Finance Live:
“They’ve acknowledged for a while this will be a bumpy ride as they continue to bring inflation down.”
According to data from the digital asset price tracking website CoinMarketCap, the overall value of the cryptocurrency market decreased by 6.3% to $908 billion.
Correlation Between Fed Rate Hike And Bitcoin
During its two-day monetary policy meeting this week, the Fed may opt for a rate hike of 100 basis points, as opposed to 75 basis points, to combat soaring inflation in the United States.
If this were to occur, it would be the most significant increase in interest rates in over 33 years, since the Fed last raised rates by 100 basis points in February 1989.
Fed Chair Jerome Powell has stressed maintaining high interest rates to combat inflation, emphasizing that the central bank does not want Americans’ inflation expectations to continue to rise and that history advises against prematurely easing policy.
Meanwhile, following the March, May, and June meetings of the Fed, the price of Bitcoin fell by at least 10 percent. Although the decline following the July meeting was less harsh, there is a significant correlation between Fed rate hikes and crypto market depreciation.
BTC total market cap at $361 billion on the daily chart | Source: TradingView.com Featured image Business Insider, Chart: TradingView.com (The analysis represents the author's personal views and should not be construed as investment advice).