Crypto battle on Fed concerns. What can this week hold?
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Response to Biden’s executive order on crypto could create more waves.
Important points
- Bitcoin fell below $20,000 on the back of hawkish Fed comments.
- Some of the responses to President Biden’s executive order on crypto come the day after Labor Day.
- Expect continued hype and speculation as D-Day for Ethereum approaches.
Cryptocurrency sentiment fell back into “extreme fear” territory last week after Federal Reserve Chairman Jerome Powell said sharper rate hikes were likely. The total crypto market capitalization again fell below the $1 trillion mark and lead crypto Bitcoin (BTC) fell below $20,000, according to CoinMarketCap data. As crypto investors wonder if this winter will ever end, let’s take a look at some developments that could affect crypto prices in the coming week.
On Friday, Powell emphasized that the Fed is not going to ease high interest rates anytime soon. Cryptocurrencies fell along with stocks as Powell removed any hope that it would reverse its hawkish stance. The central bank wants to curb spiraling inflation. What was clear from Powell’s words is that price stability is the main focus, even if it hurts some businesses and households.
Tighter monetary policy is causing investors to move out of riskier assets like crypto. It has played a big role in the decline in crypto prices over the past nine months, and further rate hikes could mean more pain ahead for crypto. The Federal Reserve meets on 20-21 September for further interest rate increases. Many now expect a further 0.75% increase.
What can this week hold?
It will be more than three weeks before we know for sure what the Fed will do next. But the Fed isn’t the only show in town, especially as we may get more clarity on how the US will handle crypto regulation. Here’s what to expect from crypto in the near future:
1. Response due to President Biden’s order
It has been nearly 120 days since President Biden asked various organizations, including the Department of the Treasury, the Department of Justice and the Department of Commerce, to submit reports on various aspects of crypto and crypto regulation. Several of these answers will come right after Labor Day, and insiders will be watching closely.
The cryptocurrency market initially reacted positively to the tone of the order, but all eyes will be on the details of each proposal. For example, we will get a better sense of whether the United States can launch its own digital dollar, whether stablecoins can face heavy restrictions, and what other rules can help or hinder crypto projects.
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2. More progress towards the Ethereum merger
The first of two steps in Ethereum’s (ETH) switch from proof-of-work to proof-of-stake will take place on September 6, with the second following shortly after. It is a big step for the project and the entire industry. Note that it has also been hyped for a while, and speculation by short-term traders may have an impact on Ethereum’s price in the short term.
Pay attention to any notices from your crypto wallet or crypto exchange. Some exchanges will pause ETH deposits and withdrawals during the merge. The Ethereum team has also warned criminals may try to take advantage of the changes with phishing attempts and other fraudulent schemes. Pay extra attention to suspicious activity.
3. Continued volatility
Bitcoin languished below $20,000 for much of the weekend before recovering slightly today. However, we are still in turbulent waters and many analysts are pessimistic in the short term. Some traders believe that the leading crypto could fall to $17,000 – which would be the lowest since November 2020.
The bottom line
With so much economic uncertainty and no guarantees that the Fed can regain control of inflation in the near term, it may take some time for crypto prices to start recovering. What is important is to focus on your long-term view of Bitcoin and cryptocurrency. Only invest money you can afford to lose, and make sure you’re on top of your emergency savings and other financial basics. There’s a lot we don’t know about how the coming months will unfold, so it’s important to prioritize your financial well-being over risky assets like crypto.
