Why Bitcoin, Ethereum and the Shiba Inu are falling today

What happened

Shares in several cryptocurrencies moved lower today for no apparent reason. But the impetus appears to be tied to macro issues as investors continue to grapple with the market’s direction.

Since late yesterday afternoon, the price of the world’s largest cryptocurrency, Bitcoin (BTC -3.13%), was trading 3.4% lower, and it was hovering around $29,236 as of 09:43 ET today. Meanwhile, the price of the world’s second largest cryptocurrency, Ethereum (ETH -5.31%)traded 5.1% lower, while the meme token Shiba Inu (SHIB -3.80%) traded 4.8% lower.

So what

Bitcoin has been on a great run and is now up 76% this year. Much of this gain appears to have been driven by macro issues such as expectations that interest rate hikes will soon end, a weakening US dollar and problems in the mainstream banking system.

Image source: Getty Images.

But now the banking system – to which Bitcoin, cryptocurrencies and blockchain were created as an alternative – has shown signs of stabilizing. Furthermore, the end of interest rate hikes at the Federal Reserve’s May meeting now seems unlikely. More than 88% of traders are betting on a quarter point rise next month, which is significantly higher than what we have seen in recent weeks.

There is also much debate about the interest rate path. While the market expects rate cuts this year, some still wonder if this narrative will actually play out.

“There have been some signs that the Fed may be more aggressive on higher interest rate policy than the market is pricing in, which has driven yield differentials in the US dollar’s favor while weighing on sentiment,” LMAX market strategist Joel Kruger said, according to CNBC.

Interestingly, recent Fed meeting minutes showed that the boards of the Federal Reserve Banks of Cleveland, Minneapolis and St. Louis all wanted a half point rate hike in early March before the collapse of several US banks. The banking crisis had previously driven much of the narrative about interest rate cuts.

But the banks seem to have found some stability. And if the Fed believes the system is safe and sound, the question becomes whether inflation has fallen enough for the organization to believe it will reach the 2% target within an appropriate time frame.

Consumer prices rose just 0.1% in March on a monthly basis, but were still up 5% year-on-year. The labor market has also remained remarkably strong.

What now

Investors today appear to be reassessing their expectations for inflation and interest rates, which have been a common theme in this bizarre and unprecedented tightening cycle. Several prominent bank chiefs have also said that investors should be prepared for higher interest rates for longer than they might expect, even if they will not necessarily succeed.

While I believe the Fed is nearing the end of its rate hike cycle, a rate cut may not materialize this year and inflation may continue to bounce around as it has in recent months.

That said, I continue to like Bitcoin and Ethereum for the long term. However, Bitcoin’s new resistance level may be around $30,000 currently, which will make it more challenging to break through in the short term. I still have no interest in Shiba Inu.