Fed’s Interest Rate Hikes Attributed to Primary Catalyst of Crypto Bear Market

The decision by the federal reserve (Fed) to continuously hike interest rates to tame runaway inflation has been detrimental to the crypto market as bears continue to bite. 

The situation has become dire to the extent that the crypto market is positively skewed towards the decisions made at the federal open market committee (FOMC) meetings, according to market analyst Michael van de Poppe. 

“Crypto is heavily skewed towards the outcome of the FOMC meeting on Wednesday, while indices are acting relatively calm. What’s the best case? 1) DCA and have a longer perspective. 2) Wait until FOMC is out. 3) Avoid leverage trading.”

Interest rate surges usually have bearish impacts on high-risk assets like Bitcoin (BTC). For instance, Bitcoin (BTC) sank to $18.5K on September 19 based on global monetary tightening concerns, Blockchain.News reported. 

Speculations are high that the Fed will increase the interest rate by 75 basis points (bps) tomorrow, September 21, and this might further strain the crypto market. 

Crypto reporter Colin Wu disclosed:

“On September 21, the Fed will announce its decision to raise interest rates, and the market is expected to raise interest rates by 75bps.” 

With the Fed increasing the interest rate by 75 basis points (bps) in June, the highest since 1994, a similar fate was witnessed in July.

Mike McGlone, a senior Bloomberg Intelligence commodity strategist, noted that the Fed was using a sledgehammer on commodities and risk assets, resulting in bearish momentum. 

Sam Bankman-Fried, the CEO of crypto exchange FTX, shared similar sentiments that despite the federal reserve being caught between a rock and a hard place, it was driving the current crypto downturn because both markets and people were scared, Blockchain.News reported. 

Even though the two leading cryptocurrencies have gained some momentum in the last 24 hours, how the interest rate review will transpire this time round remains to be seen.

Bitcoin and Ethereum were up by 4.7% and 4.84% in the last 24 hours to hit $19,332 and $1,359, respectively during intraday trading, according to CoinMarketCap

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Bitcoin Hits a 10-Month Low of $29K, Fed’s Tightened Monetary Policy Triggers Risk-Off Approach

Bitcoin (BTC) dropped to the $29K level, a scenario not seen since July last year, as more liquidation continues engulfing the market.

Even though the leading cryptocurrency had briefly dropped to $29,892, it had gained momentum to hit $32,327 during intraday trading, according to CoinMarketCap.

Darshan Bathija, the CEO of Singapore-based crypto exchange Vauld, opined that the Federal Reserve’s interest rate hike might be causing a risk-off outlook in the Bitcoin market. He added:

“In light of fears of rising inflation, most investors have taken a risk-off approach — selling stocks and cryptos alike in order to cut down risk.”

Similar sentiments were shared by JoeDiPasquale, the CEO of crypto hedge fund manager BitBull Capital. He pointed out:

“The monetary policy tightening is causing investors to reduce their exposure to risk assets and BTC’s current correlation to the S&P 500 has led it to also drop today.”

Why is the crypto market becoming strongly correlated with stocks?

As more institutional investors continue jumping on the crypto bandwagon, the correlation between cryptocurrencies and stocks becomes stronger. 

Both stock and crypto prices are plunging, as evidenced by the Nasdaq index dropping by 4.2%. 

Edward Moya, a senior market analyst at forex exchange company Oanda, believes the drop in crypto prices is based on the sell-off witnessed in tech stocks. Therefore, stability in the Bitcoin market will occur when investors stop panic selling and the bloodbath on Wall Street ends.

Moya added:

“Bitcoin’s long-term fundamentals are intact, but a recovery to record highs will take a very long time. Bitcoin will begin to stabilize when the carnage on Wall Street finishes, and many investors are still in panic-selling mode right now.”

Therefore, the consensus is that dips are usually followed by bullish momentum. 

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Three Major Central Banks Play a Pivotal Role in Bitcoin Adoption

Bitcoin (BTC) arouse the attention of crypto communities followed by lively discussions after the leading cryptocurrency recently breached the psychological price of $40K. Low volatility had engulfed the BTC market because of its price that had consolidated between the $30-$40K range for months. 

Market analyst Holger Zschaepitz believes that the three major central banks, namely the Federal Reserve (Fed), the Bank of Japan (BoJ), and the European Central Bank (ECB), have been instrumental in Bitcoin adoption. He explained:

“The biggest helpers for cryptocurrency adoption are central banks. Bitcoin rises almost in tandem with the combined balance sheet of the Big3. The combined balance sheet of Fed, BoJ, and ECB has risen to almost $25tn.”



Bitcoin has been on an upward trajectory after nosediving to lows of $30K, prompted by factors like Chinese authorities’ intensified crypto mining crackdown. 

For instance, 16.4% of its total supply went back to profitability as daily addresses closer to the 1 million marks. 


Bitcoin’s exchange inflow and outflow stays dormant

According to on-chain metrics provider Santiment:

“Bitcoiners have [a] reason to cheer with prices ending the week surging past $47.8K for the first time since May 16th. A sign that BTC will approach ATH levels again, watch that exchange inflows stay dormant. Right now, things continue to look healthy.”


Therefore, Santiment believes that this dormancy in the crypto exchange inflow and outflow balance is a bullish sign for the Bitcoin market. It could prompt more upward momentum close to the all-time high (ATH) price of $64.8K recorded in mid-April. 


The number of non-zero BTC addresses hit a monthly high

Crypto analytic firm Glassnode revealed that the number of non-zero Bitcoin addresses reached a 1-month high of 38,126,040.



Therefore, it shows that more participants are joining the BTC network. Meanwhile, the Bitcoin-realized correlation recently slumped and turned negative. 




The two assets have been involved in a tussle of wooing investors as the maiden safe-haven asset. 

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Bitcoin (BTC) $ 43,784.73 1.07%
Ethereum (ETH) $ 2,349.12 0.80%
Litecoin (LTC) $ 77.26 1.82%
Bitcoin Cash (BCH) $ 254.28 0.49%