Why Bitcoin, Ethereum and Polkadot are falling today

What happened

Many cryptocurrencies fell today ahead of the release of the Federal Reserve’s meeting minutes from its last meeting, which ended on February 1. But when the protocol was first released, it didn’t seem like anything was going to move the market too dramatically.

Since late yesterday afternoon, the price of the world’s largest cryptocurrency, Bitcoin (BTC -2.62%), traded approx. 3% lower as of 2:46 PM ET today. Meanwhile, the price of the world’s second largest cryptocurrency, Ethereum (ETH -3.20%)traded 3.3% lower, while the price of the Chinese altcoin Polka dot (DOT -2.95%) was down 3.4 percent.

So what

After a nice run for the stock market and cryptocurrencies to start the year, investors have started to become more doubtful.

Image source: Getty Images.

The good news is that the labor market has remained strong, while price inflation has shown signs of slowing. But this is also kind of bad news because a strong labor market could force the Fed to keep raising interest rates and the market is looking for an end to the Fed’s rate hike campaign. On the other hand, investors are still worried about a more severe recession. In essence, the margin of error seems very small.

Crypto investors are especially looking for the Fed to end its rate hike campaign because high interest rates make riskier assets less attractive and crushed crypto prices in 2022. In the Fed’s minutes today, there didn’t seem to be any big surprises, but it’s clear that the Fed doesn’t believe it has won the war against inflation yet.

At its last meeting, the Fed raised its benchmark overnight lending rate by a quarter of a point, in line with expectations. But the Fed’s meeting minutes showed that a “few” Fed members wanted to take a half-point hike. Other members of the Fed are said to have seen the chance of a recession as “elevated”.

“Participants noted that inflation data received over the past three months showed a welcome reduction in the monthly pace of price increases, but stressed that significantly more evidence of progress across a wider range of prices would be required to be confident that inflation was on a sustained downward path, ” says the Fed’s meeting minutes.

The other big thing in crypto that investors continue to monitor is the regulatory landscape. The Securities and Exchange Commission (SEC) has begun cracking down on certain stake and stablecoin projects. Meanwhile, media reports have emerged that the Chinese government may be quietly supporting Hong Kong’s crypto push. Therefore, cryptocurrencies such as Polkadot have had a strong week.

What now

Cryptocurrencies today appear to be trading on macro news related to the Fed’s meeting minutes, which indicated that the Fed has yet to see strong enough data to stop rate hikes. While this may not have been a surprise, it’s still not exactly what investors may have been looking to hear.

Ultimately, I continue to like the larger, more mainstream cryptocurrencies like Bitcoin and Ethereum, which are increasingly being adopted and have practical utility. I think they are here to stay and will be able to ride out the rest of the crypto winter and become good long-term buys.