Why is crypto down today? – Forbes Advisor

Cryptocurrency prices rallied over the weekend and again Monday morning with all eyes on the Federal Reserve this week.

The market expects the Fed to deliver another hefty rate hike when it holds its meeting on 20-21. September.

According to CME Group’s FedWatch tool, the market is currently pricing in an 80% chance of a 75 basis point (bps) rate hike and a 20% chance of a 100bps rate hike this week.

Last week, the Bureau of Labor Statistics reported that the consumer price index (CPI) for August had fallen from July’s year-over-year figure of 8.5%. The CPI for August came in at just 8.3%. However, it was higher than the expected 8.1%. The core CPI, which strips out food and energy prices, rose 0.6% from July and 6.3% year-on-year.

None of this information bodes well for the prospect of the Fed stopping or easing its continued interest rate hikes, which crypto investors are hoping to inject more liquidity into the market.

In August, Fed Chair Jerome Powell said that raising interest rates at the September meeting would depend on the data and the outlook. “At some point, as the stance of monetary policy tightens further, it will probably become appropriate to reduce the increase,” he said. However, given last week’s core CPI numbers, it doesn’t look like that will be the case right now.

Cryptocurrency in recent months has fallen along with rising inflation. Bitcoin (BTC) has lost roughly 60% of its value since the beginning of the year, with today’s price hovering around the $19,000 threshold. Ethereum (ETH) prices are now down more than 64% year-to-date, trading just above $1,300. That’s well off Ethereum’s all-time high of nearly $4,900 in November 2021.

When markets opened Monday, leading cryptocurrencies Bitcoin and Ethereum were down more than 6% and more than 8%, respectively. Other leading altcoins were also down. XRP (XRP) was down more than 6%. Cardano (ADA) was down more than 8%, and Solana (SOL) was down almost 6%.

Traditional markets also fell. The Nasdaq Composite opened down almost 1 percent. While the Dow Jones Industrial Average (DJIA) and the S&P 500 opened down nearly 1%.

Sales pressure in 2022

Some cryptocurrency investors have argued that Bitcoin and other cryptocurrencies can be used as a hedge against inflation during the digital era. But price action in cryptocurrencies suggests that the market does not seem to view these highly volatile assets as reliable stores of value during periods of economic uncertainty.

As retail and institutional investors have become increasingly interested in cryptocurrencies as investment vehicles, crypto has begun to move more in line with the broader markets. That’s despite the fact that cryptocurrencies are generally a riskier asset class.

“Crypto is still highly correlated with growth tech stocks, so as long as the broader macroeconomic picture looks bleak, we’re unlikely to see a breakout,” said John Wu, president of Ava Labs.

However, there is no reason to assume an inherent correlation between cryptocurrencies and stocks, although investor interest in both tends to keep them moving in tandem for now.

These days, investors are seeking shelter from the negative economic impact of the Fed’s monetary tightening, and they’re just not seeking it in the cryptocurrency market.

In addition, Ethereum’s “merger”, which happened on Friday, has not helped the leading altcoins price.

The merger was the movement of the Ethereum network from a proof-of-work platform to a proof-of-stake platform. It was successfully announced on the morning of September 15. However, Ethereum prices have fallen steadily since then, as investors seem to have taken a “sell the news” approach to the process.

What you need to know about crypto investing

Early investors in Bitcoin, Ethereum and other cryptocurrencies have made a killing.

“As we’ve seen over the past year, a bear market can quickly turn into a bull market,” says Wu.

But the cryptocurrency market has a long history of extreme volatility, which is not what investors are looking for in uncertain market conditions.

Bitcoin alone has had several deep pullbacks of more than 80% throughout its history, most recently in 2018.

The native crypto is not tied to physical assets or intellectual property and does not generate cash flow or pay dividends or interest to investors. Experts say BTC prices are tied solely to supply and demand, making it difficult to assess their fundamental value.

Berkshire Hathaway CEO and investment legend Warren Buffett once discussed Bitcoin’s shortcomings at an annual Berkshire investor meeting, telling investors he wouldn’t pay $25 for “all the Bitcoin in the world.”

“Whether it goes up or down in the next year or five years or 10 years, I don’t know. But one thing I am sure of is that it does not reproduce, it does not produce anything, he said.

Bitcoin and other cryptocurrencies may eventually see their volatility and correlation to other risk assets die down. Still, the recent price action in the cryptocurrency market suggests that the bumpy ride may continue for crypto investors in the near term.

Should You Buy Dip In Crypto?

When buying the dip, crypto investors should proceed with extreme caution.

When asset prices drop as quickly as they have in the crypto market recently, it can make that coin you’ve been eyeing look like a super deal. But old Wall Street professionals have a rule of thumb that aptly describes moments like this: “Never try to catch a falling knife.”

Using your imagination, you should understand that catching a falling knife – also known as “buying the dip” – almost always ends painfully. That’s not to say that savvy investors can’t make a quick trade on increased market volatility. But the point here is that large, rapid market movements can be unsettling for the typical retail investor.