The price of Ethereum’s native token, Ether (ETH), plummeted after the Federal Reserve of the United States revealed minutes from its December meeting, indicating that they plan to hike interest rates more quickly in 2022.
The FOMC is in favour of rising short-term rates “sooner or at a faster pace than participants had previously anticipated,” according to the minutes. Trading in interest-rate futures revealed a two-thirds chance of the first hike in March, according to the CME Group.
Following the release of the minutes, Ether fell over 13.50% to $3,300. Its decline paralleled similar downtrends in the cryptocurrency market, with Bitcoin (BTC) falling nearly 9% to $42,100.
Following the Fed’s fright, ETH/USD returned to investors more losses than BTC/USD.
It appears that traders have decided to unwind tokens that have outperformed Bitcoin in terms of long-term profitability. Ether, for example, has returned roughly 175% over the last year, even after the Fed-led decline. Bitcoin’s profits, on the other hand, increased by over 15% in the same time frame.
Similarly, Solana (SOL), Ethereum’s main rival, suffered larger losses than Bitcoin after the Fed announcement, falling more than 13.75%. Nonetheless, its 12-month profits were more than 7,500%, indicating that future dramatic corrections are likely if the crypto market’s bearish tilt continues.
The price of ETH/BTC has risen to a critical level
According to the performance of a widely traded instrument, ETH/BTC, in the last 24 hours, Ether has also fallen in value against Bitcoin.
To 0.077 BTC, the pair fell a bit more than 5%. It also hit a key support level near 0.078 BTC, which has previously helped maintain Ether bullish against Bitcoin by restricting the latter’s bearish bias.
Meanwhile, the lower trendline of Ether’s falling triangle appeared to be 0.078 BTC support. Descending triangles are continuation patterns that lead the market back in the direction of the preceding trend after a period of consolidation.
As long as Ether breaks above the triangle’s upper trendline with convincingly bigger volumes, it has a better chance of remaining stronger than Bitcoin in the long run.
Far too soon to have concerns about the Federal Reserve
For months, Fed officials have maintained that supply-chain bottlenecks were the source of rising inflation in the United States, with chairman Jerome Powell claiming that it would resolve on its own. In his most recent meeting, however, he expressed less belief in the “inflation-is-temporary” storey.
This is due to the fact that in November 2021, the US consumer price index (CPI) touched an almost 40-year high, rising 6.8% year-over-year. Meanwhile, core consumer prices, which exclude energy and food, increased by 4.7% from the previous year, above the Federal Reserve’s desired inflation target of 2%.
“I believe there is a real danger today that inflation will be more persistent. And… the risk of higher inflation being entrenched has grown,” Powell stated following the FOMC meeting on Dec. 15 last year.
Three-rate reduction scheduled for 2022
Madison Faller, a global strategist at JPMorgan Private Bank, told Bloomberg that investors need not be afraid of the Fed. Saying that the three-rate reduction scheduled for 2022 will have little impact on consumer pricing. Here are some excerpts from her statement:
“While growth and inflation will slow in 2022, they will stay above historic trend levels. We believe that there will be a considerably lower probability of a Fed-induced major market correction as a result of this.”
Fears of rising inflation, which devalues cash, have pushed conventional investors to put their money in the crypto sector.
For example, Thomas Peterffy, the billionaire founder of brokerage business Interactive Brokers Group Inc., confessed that he keeps a small percentage of his net worth in cryptocurrency simply in case fiat money “goes to hell”. Last year, Ray Dalio, the founder of Bridgewater Associates, stated that Bitcoin is included in his investment portfolio.
Ether, which tends to track Bitcoin price swings, was hoping for some relief from the inflation prognosis.
Meanwhile, Fundstrat Global strategists Sean Farrell and Will McEvoy said that investors should boost their smart contract investments to take advantage of the next market rebound.
“We believe it is prudent to be overweight Ethereum and other smart contract platforms given the present macro backdrop, leverage within the Bitcoin market, and recent strength witnessed in the altcoin market,” they wrote in a note, adding:
“We wouldn’t bet the farm on Bitcoin in the near term. But we believe there is a chance to go long volatility through derivatives methods.”