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Bitcoin just hit its worst quarter since 2011.
Dreamstime
Bitcoin
and other cryptocurrencies rose on Wednesday ahead of the Federal Reserve’s latest decision on interest rates. Digital assets appear to be at the mercy of the central bank and wider markets amid prominent fears around inflation and recession.
The price of Bitcoin has risen 1% in the past 24 hours to $21,300, grinding higher after the biggest crypto took a leg down on Monday. Bitcoin has made a slow but steady rally from its recent June low below $18,000, reaching above $24,000 last week before falling back as markets braced for a turbulent week.
“Bitcoin has retreated to the $21,000 mark ahead of an expected interest rate hike by the US Federal Reserve,” analysts at crypto exchange Bitfinex wrote in a note. “Bitcoin’s pullback follows an 8.5% jump in the value of the world’s largest cryptocurrency over last week, the biggest weekly gain since March.”
Factors within crypto itself – like the failure of high-flying hedge fund Three Arrows Capital or, more recently, news of a regulatory investigation into the exchange
Coinbase Global
(ticker: COIN) – often affects prices, but macro factors are just as crucial.
While Bitcoin and its peers should theoretically trade independently of the mainstream financial markets, they have been found to be highly correlated to stocks – especially technology stocks. As such, digital assets have followed suit
S&P 500
and
Nasdaq
lower in a sale this year. Bitcoin just hit its worst quarter since 2011, and the total market cap of the crypto has collapsed to $980 billion from nearly $3 trillion nine months ago.
Now investors are focused on the end of the Fed’s two-day monetary policy committee meeting, with a decision on interest rates next to what will be a closely watched news conference from Fed Chairman Jerome Powell.
Faced with inflation at a multi-decade high, the Fed has already moved at an aggressive pace to tighten monetary policy and is expected to continue. A standard interest rate increase is 25 basis points, and in June the central bank raised interest rates by 75 basis points, or three-quarters of a percentage point, for the first time since 1994. The Fed is widely expected to raise interest rates by another 75 basis points. basis points on Wednesday.
At the heart of investors’ concerns over tighter monetary policy is the possibility of an economic downturn, because while increased borrowing costs should cool inflation, the path also risks causing a recession. It’s an environment that would be unfriendly to risky games like Bitcoin. Any indications from the Fed about their economic outlook will be closely watched, as will substantive guidance on further rate hikes to come.
Bitcoin’s decline in the days leading up to the Fed decision is normal, according to Marcus Sotiriou, an analyst at digital asset broker GlobalBlock. “Selling in anticipation of this event has been typical throughout this bear market, as many market participants choose not to buy when there is uncertainty about what action the Federal Reserve plans to take,” Sotiriou said.
But it leaves room for a rally, according to the analyst, which could come as long as there is no surprise decision or wildly unexpected messages from the central bank.
“FOMC meetings have had a significant impact on price this year, and Bitcoin tends to reverse the price action leading up to the event,” Sotiriou added. “There is a clear expectation that the Federal Reserve will increase by 75 basis points – if this happens, we could see a rally that will follow the previous patterns.”
Beyond Bitcoin,
Ether,
the second largest token, gained 3% to over $1,450. Smaller cryptos, or altcoins, were more mixed, with
Solana
up 2% and
Cardano
down 1%. Memecoins held steady, med
Dogecoin
rises 1% and
Shiba Inu
2% higher.
Write to Jack Denton at [email protected]
