Why has cryptocurrency market tumbled despite Fed pausing key rates?

At the time of writing, on CoinMarketCap, the global crypto market traded at $1.02 trillion, down by 3.89% over the last day. However, volumes increased by 28.57% to $39.26 billion.

Bitcoin’s dominance dipped gradually by 0.04% over the day, to currently at 47.55%. The largest cryptocurrency traded at $24,849.24, slipping 4.14%.

Meanwhile, Ethereum performed at $1,628.58 — tumbling by 6.6%. Further, BNB dropped by nearly 5%, also XRP shed over 6.5%, Cardano declined nearly 7%, Dogecoin plummeted by nearly 3%, TRON dived nearly 4% and Solana plunged by over 3%. Tether and USD Coin traded broadly flat.

Staying on its plan to achieve maximum employment and inflation at the rate of 2%, FOMC on Wednesday decided to maintain the target range for the federal funds rate at 5 to 5-1/4 percent.

FOMC said, “Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy.”

The status quo from FOMC should have boosted crypto markets. However, that was not the case. And the reason would be the Fed signaling two more rate hikes in the upcoming policies in 2023.

Explaining the latest performance, Shubham Hudda, Senior Manager, CoinSwitch Markets Desk said, “Crypto markets have come under a selling pressure in the last 24 hours. Global crypto market capitalization is at $1.06 trillion, down 3.6% from yesterday. Similarly, the crypto fear and greed index fell further into the fear zone, currently standing at 41 points, down 5 points from yesterday.”

According to Hudda, the market’s reaction could be attributed to comments by the Feds. As expected by the market, Federal Reserve has kept the rate unchanged at 5.25%, pausing the rate hikes for the first time since March 2021 in a unanimous decision.

Although the Fed chair Jerome Powell has tempered expectations of interest rate reductions this year, it is probable that there will be increases in interest rates in the future in order to control inflation, he said.

In the press conference, Fed’s chair Jerome Powell said, U.S. growth and the job market as holding up better than expected under the weight of the aggressive monetary policy tightening of the past year – likely lengthening the Fed’s fight to lower inflation but also letting it proceed with less economic damage, reported Reuters.

Powell revealed that the pause was out of caution which will allow Fed to gather more information before determining if rates do need to rise again. Nevertheless, the policymakers expect two more 25 bps hikes this year.

Moving ahead, Hudda added, “The top 10 cryptos by market capitalization are currently trading in the red. BTC momentarily fell below $25k before making a slight recovery, and liquidating more than 100 million dollars of longs across crypto markets. If there is no immediate recovery across crypto assets, we can expect markets to bleed further.”

Bitcoin’s weekly performance is a decline of nearly 6%, while Ethereum has nosedived by over 11%. BNB fell 10%, and XRP plunged nearly 9%. Notably, Cardano and Solano witnessed the most drop in a week of nearly 22% and 21% respectively. TRON and Dogecoin also shed over 10% each.

Updated: 15 Jun 2023, 03:41 PM IST