According to a post on social media by Nick Timiraos, a Wall Street Journal reporter, Federal Reserve officials has agreed to keep interest rates unchanged following 10 consecutive hikes. However, the Federal Reserve hinted that they may consider a rate hike next month if the economy and inflation don’t show further signs of cooling down.
Following a two-day policy meeting, the majority of Fed members predict that there will be two more rate hikes this year. The forecast for economic growth and inflation was also raised in the economic prediction released on Wednesday.
The news from the Federal Reserve meeting had a noticeable impact on bitcoin price. The value of the cryptocurrency experienced significant fluctuations, peaking at 26,100 and bottoming out around 25,750 within minutes of the announcement. The correlation between the Federal Reserve’s policy changes and cryptocurrency market reactions highlights the interconnectedness of traditional and digital economies. The upcoming actions of the Federal Reserve will undoubtedly be closely watched by both investors and market analysts.
After wiping down $47.9 million in loans that were mostly secured by cryptocurrency mining rigs during the year 2022, the holding company for the cryptocurrency-friendly bank, BankProv, has announced that it would no longer provide loans that are secured by cryptocurrency mining rigs.
Since September 30, 2022, BankProv has, according to a document that was submitted to the United States Securities and Exchange Commission (SEC) on January 31, 2019, the percentage of its digital asset portfolio that is comprised of rig-collateralized debt has practically been cut in half.
As of the 30th of December in the previous year, the bank held a total of $41.2 million in loans related to digital assets. Of this total, $26.7 million was worth of loans that were collateralized by crypto mining rigs. However, this amount “will continue to decline as the Bank is no longer originating this type of loan.”
During the bull market of 2021, the cryptocurrency mining sector took on enormous amounts of debt, and miners often offered mining equipment that they owned as collateral in order to reduce their interest rates and save money.
The ensuing bear market that began in 2022 resulted in difficult circumstances for miners. As a consequence, many miners were obliged to sell the Bitcoin (BTC) mining rigs they possessed in order to fund their operational expenses, which resulted in a precipitous drop in the price of mining gear.
In spite of the lowering prices, several financial institutions that had issued debt that was secured by mining rigs were required to reclaim some of the miners that had been pledged as security.
A prior filing with the SEC indicates that on September 30, 2022, BankProv confiscated mining rigs in return for the forgiveness of $27.4 million in loans. As a consequence of this transaction, the company was required to write down an amount equal to $11.3 million.
According to Carol Houle, the chief financial officer of its parent firm Provident Bancorp, “As we look on 2022, we are eager to absorb its lessons and emerge a better, stronger bank.” The business’s decision to discontinue providing these sorts of loans was likely strongly influenced by the losses. In spite of the losses we incurred in 2022, we start 2023 in a strong financial position and with a diverse clientele.
The U.S. Federal Reserve on Wednesday raised its benchmark interest rate by 75 basis points to a range of 3.75% to 4%, a move that market participants, including cryptocurrency traders, highly expected.
It is the fourth consecutive rate hike introduced by the Fed this year, designed to cool the economy and fight record inflation.
Bitcoin reacted with an immediate 3% upside swing, climbing at $20,700 on the 18:00 (UTC) candle. But the crypto lost 0.60% of its gains after Federal Reserve Chairman Jerome Powell sent up mixed messages in the press conference.
The Fed stated that it was considering slowing down interest-rate increases. The announcement prompted Bitcoin to initially rally up to almost $20,800 after the central bank said it “will take into account the cumulative tightening” and “the lags with which monetary policy affects economic activity and inflation” when it next decides rates.
But Bitcoin reversed its course when Powell said a more mixed message on the Fed’s plans: “We still have some ways to go,” and further, the Fed’s chair said, “incoming data … suggests that the ultimate level of interest rates will be higher than previously expected.”
Bitcoin fell below the $20,200 level based on the comment on Wednesday afternoon after nearly hitting $20,800 before the Fed Rate hike. The world’s largest cryptocurrency is still up from roughly $19,300 last Monday. Meanwhile, Ethereum is below $1,520 after it dropped from $1,634 over the weekend. ETH is still well above its $1,340 level at the beginning of last week.
Cryptocurrencies exhibited the same price movement witnessed in the stock market. The Dow Jones Industrial Average and S&P 500 dropped 1.5% and 2.4% Wednesday, respectively. And this reminded crypto traders that the correlation to equities still remains intact as the central bank is the one pulling the strings. The current environment of high inflation and rising interest rates has dampened demand for risky assets.
The flagship cryptocurrency looks vulnerable to falling its value below the $20,000 level and moving back into the $19,000 to $20,000 range, where it has been trading for most of the past two months.
Edward Moya, an analyst at broker Oanda, commented on the market development: “The initial Fed reaction was rather strong for most risky assets, but it was not sustained as the central bank will remain dependent on the next round of inflation data.”
Michael Safai, a partner at trading firm Dexterity Capital, also said: “The devil was not in the data but in the language. All eyes will turn towards next week’s CPI reaU.S. [of U.S. inflation]. If the data isn’t as hopeful as the Fed’s ambitions, crypto investors could pull back once more.”
U.S.e next U.S. Fed Reserve FOMC Meeting is scheduled for December 14-15, when market participants will gauge whether Powell intends to slow down with the pace of rate increases.
The US Federal Reserve on Wednesday announced a 0.75 percentage point interest rate increase as part of efforts to clamp down rising inflation without creating a recession.
The latest interest rate rise by the Fed follows a similar hike in June – aggressive hikes that have so far put pressure on markets, including cryptocurrencies like Bitcoin (BTC). This is the fourth time the central bank has increased interest rates this year.
The price of Bitcoin increased 3.6% in the hour after Fed Chair Powell announced another big interest-rate raise.
Although crypto prices rose slightly following the Fed’s announcement, the markets are expected to remain volatile and bearish in the next few weeks.
Bitcoin was trading around $22,784.10 as of Thursday morning, 01:24 am EAT (East Africa Time), up 8.04% in the last 24 hours.
Aggressive rate hikes normally have negative impacts on crypto prices, and the markets are likely to continue to be bearish in the short term.
Industry leaders shared similar opinions regarding crypto market outlook, Chris Terry, BPSAA Board Member and VP of Enterprise Solutions at SmartFi, commented:
“We anticipate that Bitcoin will continue to trade in this tight range of $20,000 plus or minus 10-15%. None of this should be a surprise. We could be in this stalled market for weeks and weeks. Boring.”
“The crypto economy also moves up, overperforming the stocks, thanks to the higher volatility. It’s very interesting also to see how crypto is starting to correlate with the stock market and in general, with the planetary economy. It means that the crypto market is reaching a certain level of maturity.”
Risky assets like cryptocurrency and stock have been heavily correlated since the beginning of this year. Both have been moving in similar patterns and have struggled to gain momentum this year as investors are pulling away in response to soaring inflation, rising interest rates, and a potential recession.
Does the interest rate hike continue?
The Fed raised its benchmark interest rate by 0.75% (75 basis points), thus repeating the same hike it created the previous month.
The hike comes after data released earlier this month showed that prices of goods jumped a staggering 9.1% in June. That inflation rate, as witnessed more than 40 years ago, has put additional pressure on the Federal Reserve to increase interest rates.
Federal Reserve Chairman Jerome Powell stated on Wednesday that the central bank remains committed to bringing inflation down to a target rate of 2% and further said the Fed is well-equipped to accomplish that goal.
Powell mentioned at a press conference: “My colleagues and I are strongly committed to bringing inflation back down, and we’re moving expeditiously to do so. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.”
The Fed stated that additional rate hikes will be expected as “appropriate” to fight runaway inflation. In a statement on Wednesday, the Fed said: “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
The central bank added, “Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity.”
An increase in the benchmark interest rate normally raises borrowing costs for consumers and businesses, which in theory, is meant to reduce inflation by slowing the economy and reducing demand. This means borrowers will face higher costs, from credit card debt and car loans to mortgages. But that approach risks pushing the economy into a recession.
Mixed economic data indicates a country bolstered by robust hiring and an uptick in retail sales despite several rate hikes this year designed to slow economic activity. Last month, the U.S. witnessed stronger than expected job growth, as the economy added 372,000 jobs while the unemployment rate remained at 3.6%.
However, other indicators (like slowing home sales and a drop in consumer confidence) suggest the economy has started to weaken.
According to Andrew Levin, a former Fed economist and a professor at Dartmouth College, if the central bank hikes interest rates too quickly, an abrupt economic slowdown could send the economy into a recession.
The European Central Bank (ECB) on Thursday raised interest rates by 50 basis points (0.5 percentage points) and therefore brought its deposit rates back to zero from -0.5%. The hike was a surprise move as economists had anticipated a smaller hike of 25 basis points.
The ECB, the central bank of the 19 nations that share the euro currency, increased interest rates for the first time in 11 years, ending the six-year era of the negative interest rate policy (NIRP). Now, the ECB’s deposit rate is at 0%, the main refinancing operations rate stands at 0.5%, and the marginal lending facility is 0.75%.
The ECB signalled more rate hikes ahead as part of efforts to control rampant inflation in the eurozone. The Frankfurt-based central bank’s inflation target is 2%. In June, inflation stood at a record high of 8.6%.
In a statement on Thursday, the ECB said the hike is part of longstanding efforts to prevent inflation from spreading more broadly to European goods and services, “The Governing Council judged that it is appropriate to take a larger first step on its policy rate normalization path than signalled at its previous meeting.”
The central banker further mentioned that the hike “will support the return of inflation to the Governing Council’s medium-term target by strengthening the anchoring of inflation expectations and by ensuring that demand conditions adjust to deliver its inflation target in the medium term.”
ECB President Christine Lagarde justified the larger hike: “Inflation continues to be undesirably high and is expected to remain above our target for some time. The latest data indicate a slowdown in growth, clouding the outlook for the second half of 2022 and beyond.”
In the past, The ECB had signalled it would be raising rates in July and September as consumer prices continue soaring. But it was unclear how the central bank would initiate the move.
Since 2014, the central bank has kept rates at historic lows in negative territory as it dealt with the region’s sovereign debt crisis and the COVID-19 pandemic.
The ECB’s rate hike comes one month after the U.S. Federal Reserve (Fed) lifted interest rates by 0.75 percentage points, the third hike this year and the largest one since 1994. The Fed’s move aims to tame the fastest inflation pace in over 40 years.
Since the ECB announced a bigger-than-expected interest rate rise at 12:15 UTC (Coordinated Universal Time), Bitcoin, the flagship cryptocurrency, has held its price steady at around $22,700. Bitcoin is currently trading at $23,125.74 at the time of writing at 20:29 EAT (Eastern Africa Time). The euro (EUR), the official currency of 19 member states of the European Union, rose 0.7% relative to the U.S. dollar from $1.0198 to $1.0257.
BlockFi, a major crypto lending platform based in New Jersey, announced last Friday that it would increase deposit rates across several cryptocurrencies starting from July 1.
The crypto lender said it would lower withdrawal fees on various cryptocurrencies. Additionally, the firm also stated it will end a policy that allows one free withdrawal per month. All these policies start taking effect on July 1.
BlockFi stated the reason for increasing interest rates comes from its ongoing mission to offer substantial and long-term customer service while expanding its product offerings, as well as a changing macro yield environment and decreasing market competition.
The crypto lender said it would increase deposit rates for BTC, ETH, USDC, GUSD, PAX, BUSD, and USDT in its BlockFi Interest Account (BIA) beginning next month. The firm also said it would reduce fees for withdrawing BTC, ETH, and stablecoins starting from July 1 as well.
Interest rates are normally set based on the market trends for lending and borrowing assets. The company said all prices shown on its rate dashboard are current; therefore, the new rates will be effective at the start of next month.
BlockFi further mentioned that the rates on cryptocurrencies held in its BIA accounts are basically driven by institutional demand for borrowing assets.
Apart from the increased interest rates, the firm further said it is changing its withdrawal structure effective July 1 because of high withdrawal demands.
The company stated it will scrap a policy allowing one-free monthly withdrawal for BTC, ETH, and stablecoins. The firm also said it will lower all those assets’ withdrawal fees.
BlockFi said it has accommodated the new withdrawal structure based on the current market downtrend. Therefore customers are expected to pay a maximum of $25 for transaction fees, depending on the asset.
The latest announcements by BlockFi come after the lender had secured a $250 million loan from FTX exchange and laid off 20% of its employees to improve its finances.
On Wednesday, BlockFi announced that it received a $250 million line of credit from FTX a day after Sam Bankman-Fried, FTX CEO, said that the exchange would bail out other struggling crypto firms.
Meanwhile, other related reports indicate that FTX is in talks to acquire a stake in BlockFi. According to Reuters, no equity agreement has yet been reached, and discussions are ongoing.
Last week, BlockFi joined many crypto firms hit by the current dramatic market downturn. BlockFi announced massive job cuts to weather the ongoing crypto winter.
The United States Federal Reserve announced to raise its interest rates by 25 basis points, the first time in about three years it will be making such a move since December 2018.
When the Coronavirus pandemic hit in 2020, the apex central bank reduced the interest rate to Zero in order to help the economy cushion the strain being ushered in by the pandemic.
The Justification for the Interest Rate Hike
Two years down the line, the economy has notably been experiencing a massive inflation spike that the drivers of the United States economy believe is best addressed by raising the interest rates.
While this 25 basis points hike is the first of many hikes that are slated for this year, industrial producers will generally be cushioned in how they access capital and churn out goods into the economy. The same applies to everyone accessing funding from established traditional financial institutions.
While the interest rate hike is billed to impact everyone in the United States, a lot of investors are set to benefit as the attractiveness of the traditional bond market is now bullish, with banking institutions also set to benefit from hiking rates associated with borrowing.
Keeping the interest rate at zero is the best-case scenario for digital currencies. Several of its offshoot, including Decentralized Finance (DeFi), would have benefitted more like the startups in this space provide an investing alternative where the traditional market was not offering.
However, the 25 basis points increment only implies a 0.25% increment that pales compared to the potential growth rates found in the digital currency or DeFi ecosystems today. Crypto is thus still looking good for the most part, but a continuous hike in rate might stir the hearts of risk-averse investors to choose safe assets compared to the more volatile ones prevented by digital currencies.
The rate hike seems not to be impacting the price of Bitcoin (BTC) as of the time of writing, with the nascent asset class up 2.83% to $40,800.25 per data from CoinMarketCap.
Ethereum’s native token Ether (ETH) looks poised to hit $3,500 in the coming sessions as it reclaimed a historically strong support level on Feb. 5.
Ethereum price back above key trendline
ETH price rising above its 50-week exponential moving average (50-week EMA; the red wave in the chart below) means the price also inched above $3,000, a psychological support level that may serve as the ground for Ether’s next leg up.
ETH/USD weekly price chart. Source: TradingView
The 50-week EMA was instrumental in maintaining Ether’s bullish bias across 2020 and 2021. For instance, it served as a strong accumulation zone during the market correction in the second and third quarters last year, pushing ETH price from around $1,700 to as high as $4,951 (data from Binance).
As a result, reclaiming the 50-week EMA as support has opened up the possibility of additional upside moves toward the next resistance target near the 20-week EMA (the green wave in the chart above), which comes to be around $3,500.
Meanwhile, a decisive break above $3,500 could have ETH/USD test a horizontal resistance trendline that constitutes an ascending triangle pattern. Such a move would put the Ethereum token en route to its previous record high near $5,000.
ETH/USD weekly price chart. Source: TradingView
Jobs report could play spoilers
The latest buying in the Ethereum market appeared as strong earnings from Amazon.com Inc. boosted investors’ confidence in riskier assets, including technology stocks and Bitcoin (BTC).
ETH/USD versus Nasdaq Composite weekly price chart. Source: TradingView
Ether rallied by more than 11% after the earnings release on Friday. The price jump also boosted its week-to-date profits higher to nearly 16%, its best week since August 2021.
However, the rally appeared in conflict with the latest nonfarm payroll (NFP) data, also released on Friday. Despite fears that Omicron would curtail business activity, the U.S. companies added 467,000 jobs in Jan. 2022, beating market expectations by a wide margin.
U.S. nonfarm payroll data. Source: Bureau of Labor Statistics, Bloomberg
The NFP report underscored how difficult it is for the Federal Reserve to forecast interim changes in the economy. Nonetheless, it also ensured that the U.S. central bank would go ahead with its plans to raise short-term benchmark rates at its March 15-16 meeting.
In a press conference last month, Fed chair Jerome Powell said they would continue raising interest rates after the March hike, faster than they did during the past decade if the labor market looks stronger and inflation remains above their 2% target.
Related: US Federal Reserve is making some analysts bullish on Bitcoin again
The news prompted a selloff across riskier assets, with data showing that cryptocurrency investment products processed outflows worth $61 million every week in January 2022.
“It’s important to note that there’s still significant investor demand for digital asset investment products, but institutions seemingly reacted to the Fed by offloading their positions,” noted Michael Sonnenshein, chief executive of Grayscale Investments.
Crypto investment vehicles performance in Jan. 2022. Source: CryptoCompare, FT
The pullback scenario
The bearish scenario with the price below the 50-week EMA could have ETH test its ascending channel’s lower trendline near $2,500 as support. Meanwhile, a decisive close below the trendline would bring Ether’s Fibonacci retracement levels closer, as shown in the chart below.
If the bearish scenario unfolds, the possibility of the ETH/USD pair dropping below $2,000 cannot be ruled out.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Is this the calm before the storm? Bitcoin volatility is seldom this steady. After a tumultuous downturn that had the whole market upside down, bitcoin’s fiat price is relatively flat. Everyone can breathe and rest, for a while at least. What does this mean and how long will it last, though? That’s what we’re here to explore.
Related Reading | Dwindling Bitcoin Volatility Could Lead To Decisive Move
It’s no secret that the market was expecting a hike in the interest rates, and thus people were selling risky assets. However, the powers that be postponed the increase, and, well, the market calmed down. During this downturn, though, Bitcoin proved once again that the market considers it the least risky asset in the cryptocurrency space. Everyone bled, but Bitcoin considerably less so.
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In any case, back to volatility, Arcane Research’sThe Weekly Updatehas the scoop:
“Bitcoin’s 7-day volatility is now at the lowest level since November 2020. Together with the trading volume, the volatility exploded last week when bitcoin dropped below $40,000. After bottoming at $33,500, the bitcoin price has been slowly grinding upwards, and it looks like the market has released sufficient pressure for now. Still, we might see new volatility peaks soon as bitcoin trades closer to several key resistance and support levels that might be catalysts for increased volatility.”
The pressure is off, but, the steadiness might not last. If there’s one thing we can count on in regards to bitcoin is this: volatility will return sooner than later, for better or worst.
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BTC/ USD Volatility | Source: Arcane Research’s The Weekly Update
What Are The Resistance And Support Levels?
Bitcoin “has been slowly grinding upwards,” and it’s getting close to that magical number 40. Again, The Weekly Update:
“$40,000 is a key resistance level. With BTC’s slow grind upwards lately, we could see BTC testing this resistance level shortly. A breakthrough would be a relief for the bulls and could signal a trend reversal.”
On the other hand, if things go south and the market starts bleeding again, there’s another number that we have to be aware of:
“Towards the downside, $32,500 acted as support during the initial sell-off, but $29,000 remains as the most critical support level. A breakout below $29,000 would be unsettling, which could cause havoc in the market.”
If Bitcoin touches 40 or 29, the boat might start to rock. Fasten your seatbelts and be sure to wear a life jacket.
BTC price chart for 02/01/2022 on Bitstamp | Source: BTC/USD on TradingView.com
What Causes Bitcoin Volatility?
The short answer is supply and demand. However, since the Bitcoin economy is still small compared to the world’s, several factors can upset or propel the price. From any kind of news to influencers’ opinions to regulation talk or concrete action to whales dumping on the market to interest rates hike rumors. Anything. Also, take thisInvestopediainsight into account:
“Bitcoin has only been around for a short time—it is still in the price discovery phase. This means that prices will continue to change as investors, users, and governments work through the initial growing pains and concerns until prices stabilize—if a stable point can be reached.”
Related Reading | This Bitcoin Volatility Index Pattern Suggests A Short Squeeze May Be Near
Yes, Bitcoin is the largest cryptocurrency by far andFidelity thinksit “should be considered first and separate from all other digital assets that have come after it.” However, the asset is still a wild teenager. Expect volatility and learn how to deal with it. It’s going to be a bumpy ride.
Featured Image by Pexels on Pixabay | Charts by TradingView
Ethereum’s native token Ether (ETH) will extend its 30% slump this year to the lowest price level since July 2021, if a textbook technical indicator plays out.
Ethereum chart paints bearish pattern
ETH’s price fell to its six-month low of $2,159 on Jan. 24, 2022, only to rebound sharply to as high as $2,724 days later. However, this created a so-called “bear flag” chart pattern that suggests the price could drop to $2,000 or a 17% drop from current levels.
A bear flag appears on the chart when the price consolidates higher after a strong momentum downwards but eventually moves further lower after breaking out of the upward range. In doing so, the price tends to drop by as much as the length of the previous decline, called “flagpole.”
ETH/USD daily price chart featuring bear flag setup. Source: TradingView
In Ether’s case, the flagpole’s height comes to be over $850. That roughly shifts its bear flag price target towards $2,000. Earlier this year, another bear flag formation had resulted in a similar decline, as shown in the chart above.
Rate hikes ahead
The prospect of Ether hitting $2,000 in the coming months increases further due to Bitcoin (BTC) and its vulnerability to macroeconomic trends.
Notably, the positive correlation efficiency between the Ethereum token and Bitcoin has been 0.92 in the past 30 days, according to data from CryptoWatch. In other words, Ether tailed the BTC price trends with a 92% accuracy in January 2022.
Bitcoin’s correlation with altcoins in the past 30 days. Source: CryptoWatch
At the core of the said bearish outlook is the Federal Reserve’s dovish policy. In detail, the U.S. central bank’s decision to completely withdraw its $120 billion a month Covid-19 stimulus program by early March and to increase benchmark rates from their near-zero levels after that have started hurting the so-called pandemic winners, including tech stocks, gold, and Bitcoin.
Paul Krugman, a Nobel prize-winning economist and a long-term skeptic of cryptocurrencies, envisioned a Bitcoin price crash in 2022, noting that it had “disturbing echoes of the subprime crash” during the 2008 economic crisis.
“If you ask me, regulators have made the same mistake they made on subprime: They failed to protect the public against financial products nobody understood, and many vulnerable families may end up paying the price,” he warned.
$2,000 first for ETH price?
As Ether looks bearish under the shadows of Bitcoin, many analysts anticipate the Ethereum token resume its climb later in 2022, owing to its involvement in the emerging decentralized finance (DeFi) and nonfungible token (NFT) sectors.
For instance, billionaire investor Mark Cuban noted last year that Ether could surpass Bitcoin in terms of growth.
I like Eth/L2s more, and there is no point arguing the Trilemma, halving or inflation. I like it more because I can see an unlimited number of applications that will change the biz/consumer world forever. And to use them you need to buy Eth/L2. BTC doesn’t have that demand pull
— Mark Cuban (@mcuban) October 17, 2021
Mike McGlone, the senior commodity strategist at Bloomberg Intelligence, predicted Ether to hit $5,000 in 2022 despite Fed’s tapering policies. The veteran analyst called the central bank’s rate hike plans a “win-win scenario” for Bitcoin and Ether against the U.S.’s four-decade high inflation.
Related: Ethereum hash rate scores new ATH as PoS migration underway
Nonetheless, McGlone anticipated Ether to hit $2,000 first before continuing its move higher. Notably:
“A top force to stop central-bank restraint is a decline in the stock market, with implications for cryptos […] Price supports exiting 2021 of about $30,000 for Bitcoin and $2,000 for Ethereum appear solid.”
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
