The crypto market falls ahead of the upcoming Fed meeting

The price of Bitcoin, Ethereumand other major cryptocurrencies fell on Monday as the Federal Reserve is expected to raise its benchmark interest rate by 0.75%, the biggest increase in nearly three decades.

At the time of writing, Bitcoin fell to a weekly low of around $21,935, down 2.8% in the past 24 hours, with Ethereum, the market’s second largest cryptocurrency, shedding nearly 5% for the day to today’s value of $1,528.

Among the top ten cryptoassets, Cardano is the heaviest hit with a drop of almost 7% on the day, followed by Solana (-4.35%), Dogecoin (-4.4%), and XRP (-4.15%).

The combined market capitalization of all cryptocurrencies, meanwhile, has fallen from $1.08 trillion last Wednesday to $1 trillion as of press time, according to data provided by CoinMarketCap.

The latest price action comes ahead of the two-day Federal Reserve meeting starting on Tuesday, which is expected to conclude with the US central bank raising interest rates by another 75 basis points.

Fed officials have already raised the benchmark short-term lending rate by 1.5% this year, including a 75-basis-point increase in June — the largest increase in nearly three decades.

Interest and crypto

The move, which the Fed sees as its main weapon to curb rising inflation, would see interest rates – the rate banks charge each other for overnight loans – rise to a target range of 2.25% to 2.50%, meaning support from the pandemic era of the US economy is coming to an end.

When the federal funds rate goes up, it affects the entire economy: adjustable-rate mortgages, mortgages, credit cards, student loans, and savings and other loans become more expensive.

The idea is that less available borrowing will dampen consumer demand, and thus reduce inflation.

Interestingly, US inflation has actually accelerated since the Fed began raising interest rates in March – with high prices for gas, food and rents catapulting the number to a new four-decade high of 9.1%.

Interest rate increases can also affect shares, cryptocurrenciesand other risky investments, while at the same time entailing the risk of a decrease in capital supply and ultimately a decrease in economic growth.

The expected interest rate increase in the US also follows a similar move by the European Central Bank last Thursday when the benchmark interest rate in the eurozone was raised by 0.5%.