With Fed Interest Rate Rising Faster Than Expected, Cryptocurrency Prices Expected To Experience Increased Volatility, Analysts Says
Cryptocurrency investors are closely monitoring this week’s Fed meeting, with the market expecting the central bank to announce a faster cut in its bond buying pace if US inflation rises.
“With the Federal Reserve expected to accelerate the rate at which it is scaling back its bond-buying program and signaling faster rate hikes over the next year, cryptocurrency prices are likely to experience further turmoil in the months ahead,” wrote Jesse Cohen, senior analyst at Investing.com. by email to MarketWatch.
“Higher interest rates tend to cause violent rotations in the sector as investors dump risky assets like cryptocurrencies for safer bets like value stocks,” Cohen wrote.
Edward Moya, senior market analyst at forex trading platform OANDA, repeated the point. “The fear is that if rate hike expectations become too aggressive, Wall Street may finally get that long-awaited pullback that will send markets to risk-off mode and punish the most profitable trade, which has been cryptos,” Moya wrote in Monday notes.
Bitcoin should remain trapped between the $42,000 and $52,000 levels ahead of Wednesday’s FOMC decision and updated forecasts, said Moya.
Bitcoin’s surge in the past two years can be attributed in part to popular narrative that cryptocurrency can be used as a hedge against inflation, although bitcoin has recently tended to trade alongside the stock market, some analysts said.
The cryptocurrency markets in general have seen phenomenal price increases due to their great attractiveness as an inflation hedge, Richard Snow, an analyst at Forex DailyFX, wrote via email.
Some argued that the Fed meeting won’t necessarily lead to yet another recession for major cryptocurrencies. “If the Fed surprises the market and slows the pace of rejuvenation, Bitcoin is likely to see a very fast relief rally,” Matt Blom, global director of sales and trading for crypto exchange Eqonex, wrote on the news.
“It could also be argued that the Fed tapers already have to praise, so the signaling of an increase in the early interest rate, a rally is currently the most likely result, according to Blom.
The U.S. stock market was under pressure on Tuesday afternoon. The Dow Jones Industrial Average DJIA, -0.30�ll 83 points, or 0.2%, to 35,565 Tuesday afternoon. The S&P 500 SPX, -0.75% was down 34 points, or 0.7%, at 4,634. The Nasdaq Composite COMP, -1.14% dropped 177 points, or 1.2%, to 15,236.9.
