What happened ?
Most of crypto-Coins fell today as last week’s heavy selling resumed due to many of the same concerns over the Federal Reserve’s ongoing policies and the economy.
In the past 24 hours (as of 9:50 a.m. ET today), the price of the world’s largest cryptocurrency, bitcoin (BTC 1.77%), has fallen more than 5%, to around 20,780. $. See also: Binance pulls LUNA from the platform, while Terra offers token burning to save UST.
The price of the world’s second largest cryptocurrency, Ethereum (ETH 2.17%), traded down almost 7%, and the price of the even token Dogecoin (DOGE 4.00%) is down almost 6%.
So what ?
Cryptocurrencies have not fared well as the Fed has become hawkish this year in order to fight inflation. On the same subject : Ripple Vs SEC: Bad news for cryptocurrency as this SEC setback in the Ripple case increases pressure on the market. In particular, it raised its benchmark rate for overnight lending, the federal funds rate, from zero to a range of 1.5% to 1.75% after its last hike of 75 basis points (0.75 %) last week.
When rates rise, riskier assets like cryptocurrencies tend not to fare as well, as safer assets like US Treasury securities now yield more. In addition, Citigroup earlier in the day raised the probability of a regression to 50%.
“The global economy continues to be plagued by severe supply shocks, which are pushing inflation higher and slowing growth,” writes Nathan Sheets, Citi’s chief global economist, in a research note. “But more recently, two other factors have burst onto the scene: Central banks have been adjusting policy rates with increasing vigor in their fight against inflation, and global consumer demand for goods seems settle down. »
The Fed has also started shrinking its massive balance sheet (nearly $9 trillion), which means liquidating its bond holdings. This will have the effect of removing liquidity from the economy, which could hurt bitcoin even more.
“In a world of abundant liquidity, bitcoin in this world is doing well,” Ian Harnett, chief investment officer of Absolute Strategy Research, told CNBC recently. “When that liquidity is removed – and that’s what central banks are doing right now – then you see these markets are under extreme pressure. »
Mr. Harnett believes that the price of bitcoin could drop as low as $13,000, which would certainly drag the rest of the crypto market down with it.
Recently, there have been heavy bitcoin sellers and pressure on investors as the price of bitcoin drops. Crypto-intelligence service Arcane Research recently noted that bitcoin’s huge drop over the weekend could be the result of the largest Bitcoin ETF spot losing half of its assets under management.
Objective Bitcoin ETF apparently lost more than 24,500 Bitcoin tokens last Friday, its biggest loss since entering stock Exchange in Canada in April 2021. The departure of the assets meant that the ETF had to sell around $500 million worth of bitcoins, according to Arcane Research, which cannot have been good for the supply and demand dynamics . Arcane analysts believed that the sudden outflow of funds could have been resold by “a seller forced into a huge liquidation”. »
And now ?
I certainly agree with Mr. Harnett that the price of bitcoin may continue to decline as the Fed continues its balance sheet reduction efforts. This may interest you: Dogecoin climbs 10% after Musk’s Twitter stake price announcement ($3 billion). However, it is almost impossible to try to forecast the markets.
Long term, I think Bitcoin and Ethereum are here to stay and will be good long term buys at these levels. I have never been a fan of Dogecoin as it has no real world use and no technical advantage over other cryptocurrencies which is why I recommended avoiding the token itself.