The Fed announced another interest rate hike and this triggered another drop in the cryptocurrency market.
Major cryptocurrencies react negatively to Fed announcement
Jerome Powell, current Fed Chairman, announced another interest rate hike to combat inflation that does not seem to be stopping.
U.S. CPI data record a level of 8.5%, with a high of 9.1% dating back to last July.
The statements come at the annual economic conference in Jackson Hole, and there is already talk of a 75 basis point (0.75%) jump.
This revelation, of course, has negatively affected both the major cryptocurrencies and the equities sector.
In the last 48 hours alone, the total capitalization of the cryptocurrency market has seen $80.8 billion burned. This is according to a tweet from one of the industry’s most popular news aggregators, based on data from CoinMarketCap.
$80.80 billion was wiped out from the global #cryptocurrency market cap in the past 48 hours.
— Watcher.Guru (@WatcherGuru) August 27, 2022
As mentioned above, the major stock indexes also suffered after Powell’s words. During the day on Friday, Nasdaq, S&P500, and Dow Jones closed negative, losing more than 3%.
Why do risky assets fall if interest rates rise?
This reaction among investors is quite normal. Rising interest rates will further push up bond yields, thus reducing the opportunity cost between the two financial products.
In fact, those who were previously seeking the stratospheric returns offered by cryptocurrencies will forgo them by shifting their capital to an investment that is safer but still offers acceptable returns. The reasoning can vary, even greatly, depending on the individual’s risk appetite, which determines the allocation of funds and, consequently, the composition of each portfolio.
The performance of the major cryptocurrencies
Following the news, Bitcoin broke back through the important $20,000 support, a level that had not been reached since last July 14.
At the time of writing, BTC is worth $19,890, which is about -70% from its ATH recorded in November 2021.
Certainly, the 100 richest Bitcoin addresses will not be jumping for joy, holding a total of 15.52% of the circulating supply.
— Watcher.Guru (@WatcherGuru) August 28, 2022
Ethereum, on the other hand, the second-largest cryptocurrency by market cap, lost 10% over the weekend, now standing at $1,450.