This weekend, the cryptocurrency market lost more than $100 billion after Treasury Secretary Janet Yellen delivered a solemn crypto warning.
Bitcoin has now fallen to $27,000, its lowest level since late 2020. Fears of a recession are weighing on the cryptocurrency market, potentially driving investors away from riskier bets. Dogecoin, TRON, and Avalanche have all dropped by double digits in the last 24 hours. At the time of publication, Ethereum was trading at $1,400, down 70% from its all-time high of near $4,900 in November 2021.
In recent months, the cryptocurrency market has become increasingly connected with regular equity markets. Cryptocurrency prices have declined in tandem with the S&P 500, which fell 2.9% on Friday, and the Nasdaq, which fell 3.5%.
This latest bleak turn of events comes as the Federal Reserve is anticipated to boost interest rates further during a two-day meeting next week. Treasury Secretary Janet Yellen also warned earlier this week about putting cryptocurrency in 401(k) plans, adding to the pessimistic outlook.
The initial expectation for the interest rate hike was 50 basis points, but new data from the recently issued consumer price index report has fueled suspicions that the Fed could act more aggressively, paving the way for a recession.
“The Federal Reserve is now backed into a corner,” crypto influencer Anthony Pompliano observed following the release of the consumer price index report.
External factors such as rising energy and food prices propelled inflation to a record 8.6% in May, the highest level since 1981.
Alex Kuptsikevich, a senior analyst at FxPro, said:
“[Friday’s] inflation report is the last big release before the Fed meeting next Wednesday,”
He goes on to argue that a 40-year high inflation rate will put the Fed under strain.
Goldman Sachs economists believe that the Fed will raise interest rates by 0.5% on Wednesday, 0.5% in July, and 0.5% in September, while Barclays and Jefferies foresee a 0.75% hike on Wednesday.
Both the cryptocurrency and stock markets have suffered in the previous six months, as central banks have ended Covid-19 stimulus checks and raised interest rates. “Crypto seems to be giving up the perfect opportunity to demonstrate its forgotten role as an inflation hedge,” argues Rich Blake of crypto business Uphold.
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