Jerome Powell, chairman of the Federal Reserve, sent down bitcoin and ethereum prices after speaking at an economic summit last week.
Bitcoin and Ethereum both saw big drops on Saturday, with Bitcoin dipping below $20,000 and Ethereum dipping below $1,500 for the first time in over a month. The falls followed a speech by Fed Chairman Jerome Powell last week in which he poured cold water on hopes the Fed could withdraw more rate hikes this year as it continues its fight to rein in inflation. .
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Although bitcoin saw some improvement and rallied over $20,000 on Sunday, it dipped below that key benchmark again on Tuesday and has been swinging back and forth ever since. bitcoin rallied back up a bit and held above $20,000 on Wednesday morning, but fell again on Thursday morning. Ethereum has similarly ranged during that time, again below $1,600 on Thursday morning. ethereum is currently down 8% over the last week
powell’s speech last week came in the middle of a meeting of central bankers from around the world. Investors were listening closely for hints that the Fed might ease its dovish policy stance at the next central bank meeting in September.
Those hopes were quickly dashed when Powell opened his mouth and the market responded accordingly. Stocks took an immediate plunge and continue to slide on Tuesday, following two straight losing days after Powell reaffirmed that the central bank must continue to fight high inflation by raising interest rates further. The crypto market has followed suit, as has been increasingly the case in recent months, as bitcoin and ethereum prices have increasingly followed the stock market.
Experts say that cryptocurrency prices will continue to feel the effects (increasing volatility and driving down the price) as the Federal Reserve raises interest rates further in the coming months. Here’s what crypto investors need to know to stay smart in the face of volatility and uncertainty.
how do federal rate increases affect cryptocurrency prices?
The Federal Reserve is essentially trying to curb inflation by slowing down the economy. while the result should slow price rises, the slower economy is also weighing on corporate profits and investor confidence.
And that negative sentiment doesn’t stop at the gates of Wall Street. is bleeding into the crypto market as risk aversion grows to coincide with the worsening economy. it’s not a direct relationship, but we’ve seen this pattern over the past few months.
Bitcoin’s price fell as low as $17,500 after the June fed meeting, when the central bank raised fed funds rates by 0.75 percentage point.
“you can see the impact of rising interest rates on the nasdaq, and cryptocurrencies have been shown to be closely related to high-growth tech stocks,” according to emailed statements by market analysts at bitfinex, a cryptocurrency exchange based in the british virgins. islands.
“so the cryptocurrency market has been directly affected by the recent Fed rate hikes and like other risky assets, it’s highly sensitive to Fed statements.”
Although bitcoin and ethereum prices, along with the stock market, have seen small rallies in recent weeks, crypto expert and educator wendy o says rate hikes and broader economic uncertainty could still contribute to an extended bear market. “In previous bear cycles, both cryptos have corrected 85%,” she told us recently. “I anticipate bitcoin to hit $10,000 and ethereum to hit $750.”
how should crypto investors deal with more rate hikes and price drops?
Experts say further increases in interest rates will further constrain US earnings. uu. economy, which has experienced two consecutive quarters of negative gdp this year and, by some estimates, is already in or on the verge of a recession. As such, if the Federal Reserve continues to tighten its monetary policy during its September meeting, we can expect markets to react negatively, including crypto. But that doesn’t mean you should drastically change your long-term cryptocurrency investment strategy.
As with traditional investments, you want to avoid buying high and selling low, which is the impulsive move to make when the market starts to panic. especially if the us enters a longer-term recession, staying on track with your long-term investments is your best bet.
“The trend for risky assets to be affected by interest rate hikes shows no signs of abating,” say bitfinex market analysts. “hence, we can expect bitcoin and ethereum to be negatively affected by federal reserve monetary policy. That said, the Fed has become adept at telegraphing its intentions, and much of the Fed’s expected policies are arguably already in the price.”
As always, nothing is a guarantee when it comes to cryptocurrencies, a market that plummets to a bottom as quickly as it reaches a peak, sometimes within days. bitcoin, ethereum, and other altcoins are risky assets, becoming more volatile the greater the economic uncertainty. Bitcoin’s shaky prices in recent days are emblematic of that volatility.
“we all thought that bitcoin was going to be a hedge against inflation, but it turns out that in times of war, the safe haven is still the us. uu. dollar, which projects military might more than decentralized computing networks like bitcoin,” said Dr. martin hiesboeck, head of blockchain and cryptocurrency research at uphold, a global multi-asset trading platform that allows users to trade cryptocurrencies, fiat currencies, and precious metals.
Investment experts recommend that you spend no more than 5% of your investments in cryptocurrencies, and that is with a high risk tolerance when times are good. During these tumultuous times, it’s best to play it safe.
Correction: An earlier version of this article incorrectly stated that Bitfinex was headquartered in Hong Kong. bitfinex is based in the British Virgin Islands.