Why Bitcoin, Dogecoin and Shiba Inu are falling today
What happened
Cryptocurrencies took a hit this morning as investors braced for the Federal Reserve’s upcoming meeting this week, which is expected to end with another big rate hike.
As of 10:41 a.m. ET Monday, the price of the world’s largest cryptocurrency, Bitcoin (BTC -2.49%), traded about 3.3% lower in the last 24 hours. At one point earlier this morning, the price of Bitcoin had fallen to a three-month low below $19,000 per token.
The price of meme tokens Dogecoin (DOGE -4.71%) and Shiba Inu (SHIB -5.65%) traded 4.5% and 5.4% lower respectively.
So what
The Fed will start its September meeting tomorrow and then is likely to raise its benchmark overnight lending rate, the federal funds rate, on Wednesday followed by public comments from Fed Chairman Jerome Powell.
Image source: Getty Images.
After new inflation data came in hotter than expected last week and sent markets tumbling, it became all but obvious that the Fed would hike rates by at least 0.75% at this September meeting, which would be the third such move in a row . But there is also a chance that the Fed will surprise the market and raise interest rates by a full percentage point. Currently, CME’s FedWatch tool has the probability of a full-point increase at 20%.
The US economy is already in a technical recession after US gross domestic product (GDP) fell in both the first and second quarters of the year, but many are concerned that these aggressive rate hikes by the Fed could tip the economy into a much more severe recession.
Continued interest rate hikes do not bode well for cryptocurrencies, which have already been hammered this year. As prices rise, safer assets begin to yield more, making riskier assets such as technology stocks less attractive.
Cryptocurrencies have moved much like highly valued technology stocks this year, but are arguably even riskier because they are harder to value. While you can say that a tech stock looks appealing at a certain valuation, it’s much harder to do this for the likes of Bitcoin because there’s nothing really backing digital assets. Investors in cryptocurrencies also do not receive any form of capital distributions such as dividends or share buybacks.
What now
It’s certainly hard to know what the Fed will do on Wednesday after recent inflation data came in higher than economists had expected.
I hope that the Fed will take a long-term view and consider that recent rate hikes dating back to June still probably haven’t fully worked their way into the economy, as it could take six months or more to do so, and that’s why I feel that another 0.75% rise right now is enough.
I remain bullish on Bitcoin on a long-term basis, as I see increasing adoption, despite the ongoing crypto winter. I am not interested in many altcoins right now like Dogecoin and Shiba Inu.
