Fed measure provides relief
After months of slumps and price falls, there was now a small respite for the beleaguered crypto prices. The U.S. Federal Reserve had raised the key interest rate, to which the prices reacted with relaxation and increases. An important easing signal, since the market capitalization has plummeted by two-thirds from over 3 to 1 trillion US dollars. After the rate hike, market capitalization also followed suit, rising 8 percent to $1.1 trillion. Analogously, BTC and ETH also gave themselves a jolt, rising by 9 and 13 percent, respectively. This brought them to about the same level as in June.
The Fed rate hike of 0.75 percentage points is already the fourth of its kind this year – and probably not the last. According to Fed Chairman Jerome Powell, the next hike could follow in September to counter the recent sharp rise in inflation – at 9.1 percent, the highest inflation rate in more than 40 years.
Pair run with the stock market
As in the past, the stock markets also moved in parallel with the crypto market. The Nasdaq, for example, had its strongest daily increase since November 2020. It now remains to be seen whether the trend will continue or whether it was only bought in the short term in order to grab price gains and then sell off the assets again.
However, according to Adam Sze, Head of Digital Assets Products at Global X, a sustainable calming is not in sight. He told BTC Echo, “In the near future, the crypto market will be more volatile than before due to various macroeconomic factors,” including, for example, “current high inflation, rising interest rates, and ongoing supply chain issues.
Industry-specific issues, such as the shakeout that is underway, are adding to the crypto market’s woes. Miners are dumping assets, lending companies, hedge funds and crypto exchanges are making radical corrections – all of which does little to encourage potential investors to buy. Other investors are withdrawing from cryptocurrencies in light of the developments.
While crypto is stuck in a bear market at the moment, this market situation has room to build. Ethereum has a positive outlook (a move to PoS is sure to come at some point, although The Forge will likely be delayed again) as it is increasingly embraced by institutional investors. Edward Moya, the senior market analyst for the Americas at Oanda: “The Fed decision created an optimistic view that an end to tightening is in sight. That, in turn, sparked a noteworthy rally in risky assets and gave cryptocurrencies a boost.”
What remains is the question of whether the Fed’s actions can tame inflation and restore investor courage. After the Fed corrections of May and June, there was only a brief flare-up that did not last.