Changes in monetary policy have always affected the worldwide cryptocurrency industry, spearheaded by Bitcoin, the biggest crypto-asset by market capitalization.
Bitcoin (BTC) was trading at $16,936, down 1.5% in the last 24 hours based on Coingecko data, as investors prepared for November’s consumer price index and awaited another rate hike from the U.S. Federal Reserve on Wednesday.
A much-awaited CPI data, a crucial inflation barometer that will be made public on Tuesday, and the central bank’s final policy decision for 2022, will be the centerpieces of the homestretch of key economic news for the year.
The Federal Reserve Decision And Inflation Numbers
According to the CME FedWatch tool, the Fed is projected to raise the benchmark fund rate by 0.50 percentage point, however a small minority anticipates a 0.75 percentage point increase.
A quick look into the stock market shows that U.S. equities concluded Friday’s trading session lower, before the Fed meeting rolls into action.
The Nasdaq Composite Index and S&P 500 Index all fell 0.6%, while the Dow Jones Industrial Average lost 0.9%, bringing its weekly retreat to 2.8%, its worst trading week in the last three months.
Fundamental and technical factors indicate that Bitcoin is a hedge against inflation. Yet, the continued instability of a bear market and the link with traditional markets disprove this theory.
According to researchers, the correlation is highest during times when inflation, unemployment, and interest rate hike data are disclosed.
Caleb Tucker, director of portfolio management at Merit Financial Advisors in the Atlanta area, stated:
“Crypto assets were once viewed as an inflation hedge, but recently they have behaved more like equities and other risk assets.”
Over the past year, equities, cryptocurrencies, commodities, and many other investments have experienced higher interest rates.
The broad use of Bitcoin in recent years may be a contributing factor to the high correlation between the cryptocurrency’s price and regulatory actions. In addition, the introduction of futures markets and a rise in institutional interest contribute to the maturing of the market.
Federal Reserve Chair Jerome Powell. Image: Jacquelyn Martin/AP.
Bitcoin Feels The Pressure Ahead Of Fed Meeting
Bitcoin has declined around 75% since its all-time peak in November 2021. Similarly, the second-largest cryptocurrency Ethereum has experienced a 74 percent decline. According to CoinMarketCap, ETH was trading at $1,264 on Monday, a loss of 0.2%.
The entire market capitalization of cryptocurrencies decreased by 0.5% to $850 billion by Monday morning in Asia, but 24-hour market trading volume increased by 4.5% from the previous day.
Meanwhile, it is anticipated that Wednesday’s interest rate increase would be smaller compared to the previous increases.
The market expects a decrease in interest rates because the chair of the U.S. Federal Reserve, Jerome Powell, stated earlier this year that interest rate hikes will be reduced beginning in December.
The crypto market may see a relief rally if the interest rate hike announcement is smaller than the ones that have come before.
BTC total market cap at $325 million on the daily chart | Featured image - EuroNews, Chart: TradingView.com