The US Federal Reserve System (Fed) has published a report on monetary policy. The regulator raised forecasts for annual inflation in 2021-2023. In 2021, inflation expectations increased from 2.4% to 3.4%. In 2022 – from 2% to 2.1%, and in 2023 – from 2.1% to 2.2%. Such statements caused the markets to fall in the moment. The Dow Jones fell 0.77%, the S&P 500 – 0.71%. Bitcoin fell to an intraday low of $ 38,300. Thus, the cryptocurrency market plunged into the red after the American stock indices. As we can see, the Salvadoran effect supported the cryptocurrency only for a short time. And the World Bank has already refused to help this Latin American country in integrating Bitcoin into the financial sector.
Altcoins, following the first cryptocurrency, also began to lose ground. Ethereum (ETH) and Binance Coin (BNB) fell to $ 2,419 and $ 358, respectively. Cardano (ADA), Dogecoin (DOGE) and XRP fell by about half a percent. Cryptocurrency market capitalization fell to $ 1.621 trillion.
At the same time, the dollar rose in early European trading on Thursday, climbing to levels not seen in about two months.
Many investors see Bitcoin as a hedge against inflation, but they also classify it as a risky asset, which can cause its value to fall if monetary policy tightens. In addition, historically, Bitcoin tends to show an inverse correlation with the dollar.
The decline in quotations is associated not only with the Fed rate
It is likely that the decline in quotations is not specifically related to the Fed rate, but a whole range of phenomena affects prices, but it cannot be denied that there are many investors from traditional markets on the crypto market at the moment. And they are used to relying on traditional analysis tools, including the Fed rate.
Why does the Fed rate affect the crypto market? The fact is that when the printing press turned on (the Central Bank began to distribute money for free on a huge scale), cheap money began to flow into the market. They provoked the growth of many assets, including stocks and cryptocurrencies. If the Fed tightens its monetary policy, accordingly, there will be no cheap money, which means that investors will begin to withdraw their capital from digital assets. This could lead to a deeper correction in the crypto market and even lead to a crypto winter.
What do the cryptoindustry think about this?
Despite the pullback of BTC, long-term holders of the cryptocurrency, or so-called hodlers, continue to hold onto coins purchased 3-12 months ago.
The Glassnode report says Bitcoins purchased in earlier phases of the race remain in the wallets of long-distance investors.
As for the Bitcoin price, analysts believe that a drop below $ 37,000 is likely to push the BTC price down to the lower end of the current range in the $ 35,000 to $ 31,000 zone.
At the same time, investment director of Warwick Capital Management Brian Tehako drew attention to the amazing calmness and complete neutrality of the market.