Why Bitcoin, Ethereum and the Shiba Inu are falling today

What happened

Shares in most cryptocurrencies fell over the weekend as digital assets and stocks brace for what could be a turbulent week, with the Federal Reserve set to hold its July meeting, another big interest rate hike looming, and more key economic data to come later this. week.

Over the past 24 hours, the price of the world’s largest cryptocurrency, Bitcoin (BTC -4.26%), had fallen about 2.6% as of 9:13 a.m. ET Monday. The price of Ethereum (ETH -5.71%) was down more than 3%, and the meme token Shiba Inu (SHIB -4.81%) had fallen 3.5%.

So what

Like many tech stocks and riskier assets this year, crypto prices have taken a beating as inflation has risen this year and the Federal Reserve has quickly raised its benchmark overnight lending rate, the federal funds rate. Risky assets typically underperform in the face of rising interest rates because returns on safer assets rise, demanding more of the earnings and returns of growth assets, which previously traded at premium values.

On Wednesday, the Fed’s interest rate committee is widely expected to raise the federal funds rate by another 75 basis points (0.75%), but investors will be looking for clues in the Fed’s comments about how the Fed views the economy and future rate hikes for the rest of the year. A more hawkish Fed is likely to cause problems for the stock market and cryptocurrencies. However, if the Fed feels more comfortable about the state of inflation and the future economic outlook, asset prices may react positively.

“The way this week plays out, I suspect today will be the quietest day of the week ahead [for crypto],” Oanda analyst Jeffrey Halley wrote in a recent research note.

Along with several earnings reports, another major event that could affect crypto and broader market activity will occur on Thursday, when the US Bureau of Economic Analysis releases its estimate of gross domestic product (GDP) growth for the second quarter of the year.

In the first quarter of the year, US GDP fell by 1.6% after growth of almost 7% in the fourth quarter of 2021. Two consecutive quarters of negative GDP growth technically signals a recession. Goldman Sachs earlier this month, Q2 GDP estimates were trimmed to about 0.7%, which would keep the US just barely out of a technical recession.

With a strong labor market and most major US banks reporting strong consumer spending in the 2nd quarter, it doesn’t really feel like the US economy is tipping into a recession, but the market may see the slowdown just beginning, which may not be the case favorable to riskier assets such as cryptocurrencies.

What now

In the short term, I could see crypto prices going in either direction. A less hawkish Fed and better-than-expected Q2 GDP growth could signal to the market that the Fed may be able to tame inflation and engineer a softer landing than many have envisioned in recent months.

That will likely bode well for crypto prices. But more hawkish comments and weak economic data could lead to downward movement.

Regardless, I still see Bitcoin and Ethereum as good long-term investments given their growing worldwide adoption and real-world use cases. Shiba Inu doesn’t seem to have any technical or fundamental investment mission, which is why I would avoid the meme token.