Crypto in pain as markets fear what the Fed Chair has to say this week on inflation
Crypto and other risk assets are feeling the pain thanks to the current “risk-off” sentiment that has resulted in the US Dollar Index (DXY) rising to heights not seen in over two decades; and nervousness about what Fed Chair Jerome Powell might say this week isn’t helping.
According to Wikipedia, the US Dollar Index” (DXY) – which is designed, maintained and published by ICE (Intercontinental Exchange, Inc.) – is an index (or measure) of the value of the US dollar against a basket of foreign currencies. These other currencies are EUR, GBP, JPY, CAD, SEK and CHF.
According to data from MarketWatch, the DXY has gone from around 106.48 to 109 over the past five-day period, which is the highest it has been since June 2002.
Now look at how the S&P 500 has performed over the same period:
Although DXY and risk based assets such as stocks and cryptocurrencies are not always negatively correlated, they seem to be most of the time since there is fear/panic in global markets – e.g. because there is concern that the Fed may raise interest rates – investors tend to run to US Treasuries, which are considered very low risk.
US stocks are struggling today, with all four major US stock indexes in the red (as of 16:40 UTC 22 August):
Crypto has also struggled in recent days. For example, since last Monday (August 15), the Bitcoin price has decreased from $25,033 to $21,358 (as of 16:13 UTC on August 22), which is a drop of 14.68%.
The main macro factor behind the jitters in global markets is concern that Fed Chair Powell may be sounding rather hawkish, suggesting the central bank will raise interest rates by at least 0.75% in September in an attempt to control raging US inflation .
The 2022 Economic Policy Symposium, “Reassessing Constraints on the Economy and Policy,” will be held on 25-27 August in Jackson Hole, Wyoming. This annual symposium is hosted by the Federal Reserve Bank of Kansas City. Fed chairman Powell is one of those present.
Robert Cantwell, portfolio manager at Upholdings, told CNBC:
“When you see the market right now falling like this, this is the market saying that the Fed needs to be more aggressive in slowing the economy further if they want to bring inflation back down.“
Here is what two popular analysts say about the crypto market in general and Bitcoin in particular:
