Federal Reserve: Federal Reserve’s rate hike hint sends cryptos crashing

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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.



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