The price of Bitcoin and other crypto-assets were on a downtrend on Wednesday, following indications that the Federal Reserve was about to tighten the monetary policy for 2022.
Bitcoin dropped by 4%, sinking below the USD 45,000 level to hold at USD 44,000. About one week ago, Bitcoin tried hard, moving up to USD 48,000.
According to Craig Erlam, an analyst at Oanda, Bitcoin is failing to build enough momentum for a breakout, which is pretty disappointing for some enthusiasts. However, Erlam adds that it should not because there is consolidation in the entire financial market, and cryptos are not immune.
Like Bitcoin, Other Cryptos are on a Downtrend
Ether, Bitcoin’s smaller peer, was also on a downtrend. It tumbled by more than 6%, reaching a low of USD 3,250 after hitting a high of USD 3,500 the previous day, Tuesday. Both Ether and Bitcoin remain far from the highs reached in November 2021 of USD 4,865 and USD 68,990, respectively.
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Other altcoins are also on a downtrend.
- Solana fell by 10% (Read more: OpenSea Now Closing in On Its Support for Solana Non-Fungible Tokens (NFTs) )
- Litecoin dropped by 7%
- Cardano slumped by 7%
- Dogecoin retreated with a 5%
The declines reported in cryptos mirror those reported in the stocks. The stocks receded despite the signal by the Federal Reserve that a half-point hike was likely. Most markets are opting to price aggressively from the Central Bank’s focus to wrestle down inflation. This is why higher long-dated bonds have become very attractive, hitting the stocks hard.
Although cryptos are expected to trade independent of the traditional financial markets, they have been demonstrated to be closely correlated. They are particularly correlated to tech stocks.
Investors were getting worried about more aggressive shifts in the Federal Reserve monetary policy. The central bank is largely expected to increase interest rates to cut the size of the balance sheet and fight inflation. High interest rates would correspond to higher bond yields and higher borrowing costs, slowing down economic demand.
Federal Reserve Expected to Raise Interest Rates, Negatively Impact Cryptos
This move could negatively impact the cryptos and tech sector. Tech stocks use valuation pegged on profits in the future and high bond yield in the present. This scenario is likely to dampen the perception of risks for cryptos like Bitcoin.
According to a team of analysts at a crypto exchange Bitfinex on Wednesday, the trend of range-bound trading is still in place despite the price of most cryptos dipping.
However, this week might come with some promise with the start of the annual Bitcoin conference in Miami. Bitcoin might test its 200-day moving average, swinging to USD 48,000 mark.
In 2021, El Salvador’s president indicated that asked parliament to make BTC one of its legal tenders, and the anticipation for the announcement is positive and building up, according to Yuya Hasegawa, analysts at crypto exchange Bitbank.