Leave it to the Fed to say something stupid that ultimately brings down the prices of bitcoin and many of its altcoin cousins. The world’s number one digital currency is now trading for just over $40K at the time of writing after Jerome Powell of the Federal Reserve commented that the agency is looking to hike rates again next month as a way of combating inflation.
The Fed Will Hike Rates Again
In addition to bitcoin, assets like Ethereum fell by more than five percent, along with Solana. Cardano and BNB dropped by more than three percent, while Ripple’s XRP and Dogecoin each fell by more than six percent.
With inflation higher than it’s been in 40 years, the Fed is starting to feel extreme pressure to keep things in a state of “normalcy” for Americans who can no longer afford items they need to keep their families well and safe. In a statement, Powell explained:
It is appropriate in my view to be moving a little more quickly… I also think there is something to be said for front-end loading any accommodation one thinks is appropriate. I would say 50 basis points will be on the table for the May meeting.
Goldman Sachs says that virtually any decision made by the Fed will affect bitcoin and the crypto space in some way. The financial giant explained:
These assets will not be immune to macroeconomic forces including central bank monetary tightening.
One of the big problems facing bitcoin right now is that its behavior is still very reminiscent of a standard tech stock. For all the talk of bitcoin working as a hedge against inflation, the currency doesn’t seem to be stepping into a behavioral category all its own. As crypto writer George Kaloudis recent stated:
While bitcoin’s hard money properties make it a risk-off asset for its supporters, investors see a risk-on asset because of its volatility and technology-like asymmetric price upside. When investors want to cut risk, they sell stocks alongside bitcoin, so bitcoin isn’t a risk-off or risk-on asset yet. Instead, I think it’s better to call it ‘risk everything.’
A Shaky Four Months for Bitcoin
Thus far, bitcoin has had something of a relatively dismal year. While at the end of 2021 the currency was trading in the high $60,000 range – the strongest it’s ever been – 2022 has seen the currency trading for anywhere between $20,000 and $30,000 less. Many factors are likely contributing to this, the war in Ukraine potentially being a big one.
At the same time, rate hikes have occurred regularly throughout the year thanks to the COVID pandemic finally coming to a standstill in recent weeks. As a result, the Fed is removing all financial precautions and is no longer buying bonds, meaning bitcoin is no longer being pitted against horribly uncertain economic conditions.
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