The Crypto Market Shrinks, Eyes of the Fed’s Next Move

The Crypto Market Shrinks, Eyes of the Fed’s Next Move

August 19, 2022 0 By Jeanine Sanchez

The crypto market’s rally has lost its strength, especially for Bitcoin and Ethereum. Both assets have lost as much as 4% within the last hour alone. 

The Rally is Over

Bitcoin has lost up to 6% in the past 24 hours as it now trades at $21,934. Ethereum, on the other hand, has lost up to 7% in the past week and it currently trades at $1,751.

The latest wave of the rally in the crypto market followed the last consumer price index that was released. The consumer price index came in less than what was expected at 8.5% year-on-year. At that time, it revealed that the inflation rate was about to get calm.

Nevertheless, as officials of the US Federal Reserve continue to assume a hawkish position, the crypto market might begin to glide lower. Officials of the Federal Reserve are bent on having a hawkish perspective around the next interest rate increase.

The President of St Luis Fed Reserve, James Bullard, gave a lot of indication that the next rate will be 75 basis points. He made his intention of giving inflation major pressure and pushing it downward by all means.

Minneapolis Federal Reserve President and CEO, Neel Kashkari, is in the league of the dovish Federal Reserve officials. Nevertheless, he has expressed his position that there is an urgency around the need to control the exceedingly high inflation rate.

Expect a Higher Rate 

The consumer price index is one of the dependable reflectors of inflationary realities in the economy. The Federal Reserve usually responds to high inflation rates with quantitative monetary policy tightening. This is just a means of making sure inflation is under control.

The 75 basis points interest rate increase implemented in the month of June led to what was termed a bloodbath for cryptocurrencies. Bitcoin experienced its most devastating annual quarter in more than ten years. But higher inflation records in July did not have such a devastating impact on cryptocurrencies.

The major reason behind that is the feeling that inflation had started to subside. Importantly, the US GDP displayed a negative trajectory of growth for two straight quarters. This is, however, a feature of a technical recession.

A lot of financial experts are looking forward to the Federal Reserve pulling back on its hawkish position with the current economic realities. But then, a higher interest rate increase in September might cause another “bloodbath” in the cryptocurrency market.