The crypto markets have experienced significant turbulence recently, following regulatory actions coupled with notes from the Federal Reserve. Cardano (ADA) has suffered the most among the top ten largest cryptocurrencies, losing a staggering 22% in value over the past week and 7% in the past day, according to CoinGecko. Other major losses include Binance’s BNB token (down 10.3%), XRP (down 9.1%), and Dogecoin (down 9.5%).
In the midst of this bearish trend, Bitcoin (BTC) took a hit as well, dropping below $25,000 on Wednesday morning with a 6% decrease over the week. The total crypto market cap has lost approximately $40 billion or 4.2% in the last 24 hours. Ethereum (ETH) fell by 6.4%, reaching three-month lows of around $1,630, with a weekly decline of over 11.3%.
This ongoing downturn in the crypto market appears closely linked to the uncertainty surrounding the U.S. Federal Reserve’s stance on hiking interest rates. Although the markets initially reacted calmly, the decline accelerated on Thursday morning.
The American central bank maintained its benchmark interest rate unchanged after Wednesday’s Federal Open Market Committee (FOMC) meeting. However, it also hinted at the possibility of several interest rate hikes before the end of the year. These rate hikes could increase borrowing costs, making credit more expensive and limiting opportunities for wage and business growth. Additionally, higher interest rates in direct bank deposits and government bonds might render stocks and cryptocurrencies less appealing to investors.
Today’s 0.17% increase in the dollar index (DXY) against other reserve currencies further supports the notion that this price action is driven by the Fed’s decision. The U.S. stock market also reacted negatively to the Fed’s uncertain rate pause, evidenced by initial drops in the S&P 500 index and the tech-heavy Nasdaq 100 indices following the news. However, both equity indices recovered their intraday losses, with the S&P closing the day 0.08% higher and Nasdaq with 0.86% gains.
The unfolding situation has generated opposing viewpoints on the relationship between the Fed’s interest rate decisions and the crypto market’s performance. Some argue that the market’s downturn is a temporary phase, exacerbated by uncertainty surrounding the Federal Reserve’s interest rate policy. Others maintain that cryptocurrencies will become less attractive investments as traditional financial instruments offer higher yields.
While it remains to be seen how the crypto market will navigate this challenging landscape, one thing is certain: ongoing uncertainty surrounding interest rate hikes and their potential impact on both traditional and digital markets will continue to play a substantial role in shaping the investment climate.
Source: Decrypt
