Cryptocurrency Market Price Correction
Just yesterday afternoon, we briefed you on the latest developments related to the two-day Fed meeting, which resulted in a 50 basis point (0.5 percentage point) increase in the federal interest rate to a range of 0.75% -1% to beat the rising inflation in the United States.
Immediately after the Fed’s press release, the markets reacted to the interest rate news with growth as financial market experts expected this interest rate increase. Risky assets also gained from the statement by Fed Chairman Jerome Powell, refuting the rumours that the Fed would plan to raise interest rates by up to 75 basis points at one of its upcoming meetings. Immediately after this announcement, cryptocurrencies and stocks improved significantly.
However, the dynamic of risky markets is very high and often unpredictable. Just one day after Bitcoin rose by more than 5% and again tested the critical milestone of $40,000, the short-term optimism turned into uncertainty, which caused a massive outflow of capital from the market.
Bitcoin, the strongest and most popular cryptocurrency, dropped 7.92% within a few hours to a local low of $35,571, the most significant bitcoin price drop since 4 March 2022. Furthermore, bitcoin’s price dropped to its lowest level since 24 February, when bitcoin traded for only $32,900, according to Binance.
Market number two, Ethereum, recorded a loss of 6.57% in just a few hours to a local price low of $2,683. Other altcoins such as Solana, Terra and Cardano did not avoid corrections either and recorded losses of 9.01%, 4.35% and 12.27%, respectively.
In addition, total market capitalisation fell nearly 7.5%, from $1.8 trillion to a level fluctuating around $1.69 trillion.
The sudden change in the cryptocurrency market sentiment is closely linked to the behaviour of stock market participants, where investors have, over time, more thoroughly reassessed the future consequences of rising interest rates and the Fed’s continuing hawkish policy. Inflation, which is reaching a 40-year high in the US, is a major challenge as investors remain concerned about whether the US Federal Reserve will be able to reduce inflationary pressures without putting the US economy into a direct recession.
According to the head of the New York brokerage company Genesis Global Trading, risky markets now need to deal with the influence of tighter monetary policy, which may cause higher volatility and a growing correlation between the stock and cryptocurrency markets.
US 10 Year Treasury bonds have moved above 3%, the highest level since 2018. Rising government bond yields may signal that demand for government bonds is growing. When the rates on 10-year government bonds grow, investors tend to move their capital from risky assets to government bonds with minimal risk, which causes an outflow of capital from the stock or cryptocurrency markets.
The Fear & Greed Index, which deals with the multicriteria analysis of the cryptocurrency market, moved from „fear“ to „extreme fear“ within one day. In the past, the area of extreme fear has proven to be the best opportunity to expand your investment portfolio.
Market Drops Can Be a Profitable Buying Opportunity
Although short-term cryptocurrency market sentiment may appear to be highly disrupted and negative, the financial and technological potential of cryptocurrencies and blockchain technology is unquestionable in the long run.
For this reason, it is important to look at cryptocurrencies as long-term investments and not panic about short-term price fluctuations.
Emotional decision-making is a dangerous weapon that can quickly ruin your investment portfolio. Take advantage of the collapse of the cryptocurrencies with Fumbi, which offers you a quick, safe and easy investment in cryptocurrencies. As the most well-known investor and US billionaire, Warren Buffett, says, „be greedy when others are fearful.“START INVESTING