The crypto market is uneasy about the Fed meeting and high inflation. Here’s why

Cryptocurrency investors are closely watching this week’s Federal Reserve meeting, as the market expects the central bank to announce a faster cut in the pace of bond purchases as inflation rises in the US.

Facing Macroeconomic Uncertainty, Bitcoin BTCUSD,
-3.39%
It has fallen more than 30% from its all-time high of $68,991 in November, and has recently traded at $47,565. Ether ETHUSD,
-0.04%
It is down more than 20% from its high of $4865.6, and it was recently traded at $3,834.

“With the Federal Reserve expected to accelerate the pace at which it is winding down its bond-buying program and signal faster price increases next year, crypto prices are likely to suffer further turmoil,” said Jesse Cohen, chief analyst at Investing.com. in the coming months.” , to MarketWatch via email.

“High interest rates tend to cause a violent rotation in the sector as investors dump risky assets, such as cryptocurrencies, for safer bets, such as value stocks,” Cohen wrote.

Edward Moya, chief market analyst at forex trading platform OANDA, echoed this point. “The fear is that if interest rate hike expectations become too extreme, Wall Street may finally get that long-awaited pullback that will send markets into a no-risk mode and penalize the most profitable trade, which was cryptocurrencies,” Moya wrote in his notes on Monday. .

According to Moya, “Bitcoin should remain stuck between the $42,000 and $52,000 level until Wednesday’s FOMC decision and updated forecast.”

Bitcoin’s rally over the past two years may partly be attributed to the popular narrative that the cryptocurrency can be used as a hedge against inflation, although Bitcoin has tended to trade alongside the stock market lately, some analysts said.

“Cryptocurrency markets, in general, have seen some massive price hikes due to their huge appeal as an inflation hedge,” Richard Snow, analyst at Forex DailyFX wrote by email.

Some have argued that the Federal Reserve meeting may not necessarily lead to further declines in major cryptocurrencies. “If the Fed surprises the market and delays the gradual decline, Bitcoin will likely enjoy a very fast rally,” Matt Bloom, global head of sales and trading at crypto exchange Eqonex, wrote in a note on Tuesday.

According to Blom, “It can also be argued that the Fed is already priced in, so barring references to an early rate hike, a hike is currently the most likely outcome anyway.”

The US stock market came under pressure on Tuesday afternoon. Dow Jones Industrial Average DJIA,
-0.01%
It fell 83 points, or 0.2%, to 35,565 on Tuesday afternoon. S&P 500 SPX Index,
-0.41%
was down 34 points, or 0.7%, to 4,634. Nasdaq Composite,
-0.96%
It fell 177 points, or 1.2%, to 15236.9 points.

Read more: “We are watching $37,000,” says a leading technical analyst, why Bitcoin could face another 20% drop in the coming weeks, as “risks rise.”

Read more: US stocks lose steam after a higher-than-expected wholesale inflation reading with the start of the Federal Reserve meeting

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