Crypto On Roller Coaster As Market Prepares For Fed Guidance On Rates

Cryptocurrency markets have been on a rollercoaster ride since the collapse of the Terra stablecoin last month, but the biggest scare now in the land of cryptocurrencies and other financial markets is that global inflation is accelerating, suggesting that the white knuckle journey will continue.

While most major tokens rose roughly 5% overnight, prices during Asian trading quickly shed those gains, with Bitcoin shedding 5.5% and Ethereum 11%. Bitcoin has lost around 55% of its value since the start of the year to trade at US$20,592 at press time. The non-fungible token (NFT) market has not escaped the downturn.

Just last week, markets priced in a 50 basis point hike in interest rates by the US Federal Reserve to rein in inflation at their monthly meeting today. But speculation now is that the Fed may hike as much as 100 basis points, after Friday’s Consumer Price Index (CPI) showed May inflation of 8.6% year-on-year in the US, the highest in 40 years.

Read more: Bitcoin and Ether bear the brunt of market sell-off amid fears of a Federal Reserve rate hike

But the Fed faces a difficult balancing act to avoid pushing the economy into recession; With billions of dollars of bonds on their books from quantitative easing, moving too fast will send debt payments skyrocketing.

“The Fed wants to try to show steady progress rather than create a moment of shock and amazement in the market,” said Andrew Sullivan, a market analyst and former stock trader. “Because as we saw on Friday, if that happens, the markets tend to crash and that’s not good for anybody.”

Markets took a beating over the weekend following the release of the IPC data, with the crypto market capitalization falling roughly 25% to fall below US$1 trillion for the first time since January 2021, according to data. from CoinMarketCap.

Stock markets were also hit hard, with the S&P 500 falling 3.9% on Monday, confirming that it was officially in a bear market.

Raising rates is the main tool available to central banks to combat rising inflation by raising the cost of borrowing to cool down an overheated economy. While the markets are focused on what Fed Chairman Jerome Powell will do today, the focus will also be on what he indicates is ahead.

“A lot of this will come down to how Powell explains it, he’s been very good at trying to give guidance so the markets don’t get upset,” Sullivan said.

algorithmic crypto

The crypto markets have other specific concerns.

Investors still stunned by Terra Stablecoin’s estimated $40 billion implosion face the threat of a repeat performance as another algorithmic stablecoin, USDD, lost its peg to the US dollar. The loss of the dollar peg started the chain of events that led to the Terra debacle in early May.

In a bid to bring USDD back to parity with the US dollar, TRON’s Decentralized Autonomous Organization (DAO) said it added US$500 million worth of USDC to its reserves, which have been out of parity for about two days.

Read more: TRON Founder Pledges US$2 Billion Defense Fund After USDD Stablecoin Loses Dollar Peg

TRON founder Justin Sun said on Monday that he is creating a $2 billion fund to defend the coin, but at press time, USDD was trading at $0.9635.

If more turmoil were needed, cryptocurrency staking and lending platform Celsius Network halted withdrawals, trades and transfers for all users on Monday, citing “extreme market conditions.”

The network said it was working as quickly as possible to address the issue, though it did not say when transactions would resume.

beaten apes

The cryptocurrency roller coaster is also taking its toll on the non-fungible token (NFT) market, with June sales figures falling sharply.

Sales reached $3 billion in May, but as of mid-June they have yet to reach $500 million, according to NFT data aggregator CryptoSlam.

The floor price of a Bored Ape Yacht Club NFT fell below $100,000 for the first time since August 2021. The current floor price is 78.5 ETH, or approximately $88,500.

“I don’t know of anyone right now who is actually buying NFTs,” said Yehudah Petscher, CryptoSlam NFT Relationship Strategist. Forkast In an interview. “I don’t think most NFT projects are going to survive this bear market,” he said. “I think this is the biggest.”

What about Bitcoin? Ben Caselin, head of research at crypto exchange AAX, said Forkast remains bullish on Bitcoin as it has proven its fundamentals to be solid time and time again.

The war in Ukraine has shown it to be resistant to government controls, he says, while his inflation-hedge narrative will win out in the long run, especially after periods of high inflation.

“We will see Bitcoin dominate again and some altcoins will die,” Caselin said, “and rightfully so.”

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