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Fed hits cryptocurrency market again

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.

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.

Ethereum, on the other hand, the second-largest cryptocurrency by market cap, lost 10% over the weekend, now standing at $1,450. 

It was followed by Binance Coin (BNB, -2.91%), Solana (SOL, -6.34%), and Avalanche (AVAX), which among the three recorded the worst loss, amounting to 8.06% of its value.  

As a direct consequence, DeFi also loses ground. According to DefiLlama’s data, the overall TVL – considering all protocols – fell more than 5%, hitting a last-month low of $58.33 billion

Eliano Martellucci
Eliano Martellucci
Eliano has a bachelor's degree in Economics and Business Administration and is about to complete his master's studies in Finance at the University of Trento (UNITN). He got hooked on the crypto and blockchain world during the summer of 2017 and has not left it since then. He currently works as editor & SEO specialist at Cryptonomist, writes articles and invests, both in Blue Chip and early stage assets. Furthermore, he is working on his latest thesis project entitled: "A Study on crypto market Sentiment Analysis through Machine Learning algorithms in python."