Federal Reserve’s rate hike hint sends cryptos crashing

Mumbai: Cryptocurrencies including Bitcoin, Ethereum, Solana, Cardano and Terra slid sharply on Wednesday night, after the US Federal Reserve released minutes of its December meeting in which the central bank signalled it could start raising interest rates to tackle stubbornly high inflation.

At 5 pm Thursday, Bitcoin was down 8.49% at $42,835. It had earlier tested the $42,500 levels, after the Fed released its minutes.

Bitcoin reached an all-time high of $68,749 on November 11, 2021 and has outperformed all capital markets in terms of yearly price growth in 2021, with a 60% return.

Other alt coins as well reacted strongly to the news: Ethereum, Cardano, Solano, Shiba Inu, Cardano and Binance Coin all dropped by 10% or more during the 48 hours till Thursday evening.

At 5 pm, the Coinbase tracker showed a 9.80% drop in the overall crypto market in the previous 24 hours.

Bitcoin has been under pressure lately due to key central banks’ indicating that they are going to move away from low interest rates and that their bond buying programmes will gradually taper off.

Experts say the fall was expected since the market had been range-bound and very volatile in the last few days.

“The market going down is mostly being attributed to the US Federal Reserve’s plan to hike interest rates this year to target rising inflation. Like any asset, macroeconomic factors affect the crypto too. Investors must keep in mind that risk and reward go hand in hand and that they need to do their own research before buying into any asset — not just crypto,” said Ashish Singhal, founder and chief executive of CoinSwitch.

Experts say that selling pressure was largely due to US and European investors booking profits.

“The correction was imminent. From December 16 onwards, the market has been range-bound and choppy. There was also sell-off pressure because many investors in the West book profits during the Christmas holidays,” said Edul Patel, cofounder and CEO of Mudrex, a crypto investment platform.

Gaurav Dahake, CEO and founder of Bitbns, said Bitcoin tends to mellow down during the New Year, the Chinese New Year and the Christmas season. “It’s that phase of the year when people book the profits in advance, exit the market, and leave the trading for a while to spend more time with their loved ones. It’s a traditional timeline, which Bitcoin sees every year between December 20 to January 15. However, we are bullish and expect it to stabilise between the $40,000 and $50,000 mark,” he said.

Some Indian exchanges witnessed a jump in trading volumes, but the overall sentiment has been bearish in the last two months.

“BuyUcoin has witnessed an overall decrease in trading volumes as compared to November’ 21 (a month in which Bitcoin touched the all-time high),” said Shivam Thukral, CEO of BuyUcoin.

A lot of seasoned investors have started looking at these sell-offs as an opportunity to buy the dip.

“Whenever the market crashes, we have seen trading go up by 20-30%,” said Patel.

“Similar to earlier turbulence in the crypto market, smart investors are buying the dip. We have seen investors with a long-term horizon accumulating more crypto assets,” said Thakral.

Due to choppy markets in the last few days, Indian investors, most of whom joined the crypto bandwagon in 2021, have lately been a nervous lot.

“Indian investors are reacting to a variety of negative news items. There is obviously the Omicron factor, then the Kazakhstan Internet shutdown, and then the US Fed announcements. Some whales have also been drawing profits, so the market tanked. My mail inbox and the comments sections of the media channels I run have been flooded with queries from anxious investors,” said Vishal Gupta, a popular crypto commentator.

Following mass protests over rising fuel prices in Kazakhstan, the government there shut down the Internet, and Bitcoin mining activity was severely hampered due to electricity and Internet restrictions.

After the US, Kazakhstan has the second-largest Bitcoin mining activity globally.

The sell-off in cryptocurrencies coincided with a sharp correction in equities as well.

On Wednesday, the Nasdaq fell 3.34%. On Thursday, the NSE Nifty50 closed 1% lower.


Donovan Larsen

Donovan is a columnist and associate editor at the Dark News. He has written on everything from the politics to diversity issues in the workplace.

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