What is the Impact of the Federal Reserve’s Interest Rate Decision on Cryptocurrencies?

What is the Impact of the Federal Reserve's Interest Rate Decision on Cryptocurrencies?

Federal Reserve’s Rate Decision Weighs on Cryptocurrencies

The Federal Reserve (Fed) meeting on Wednesday has sent shivers down the spines of cryptocurrency investors, as the central bank’s decision to leave interest rates unchanged has raised concerns about the future of the digital asset market. Bitcoin, the world’s most traded cryptocurrency, has plunged below $58,000, signaling a potential bear market.

Interest Rate Speculation

Market analysts believe that the Fed’s hawkish stance, indicating that interest rates will not be cut this year, has dampened investor sentiment. Interest rate-sensitive assets like cryptocurrencies, emerging market stocks, and bonds have taken a hit, with Bitcoin losing 16% in April alone.

“The Fed’s decision has sent a clear message that they are focusing on controlling inflation,” said Matteo Greco, a research analyst at Fineqia. “This has led to increased profit-taking and outflows from cryptocurrency ETFs.”

ETF Outflows

Data from LSEG shows that the 10 largest U.S. spot bitcoin ETFs are experiencing significant weekly outflows of around $496 million. This outflow is largely due to slowed inflows into BlackRock’s iShares Bitcoin Trust, the largest bitcoin ETF in terms of holdings.

Altcoin Impact

The decline in Bitcoin has also spread to smaller altcoins, which often benefit from weakness in the larger tokens. Solana’s sol token has lost almost 25% over the last week, while meme coins Dogecoin and Shiba Inu have also suffered heavy losses.

Halving Effect Fizzles

Bitcoin’s halving event, which occurred on April 20th, has failed to provide any significant price support. The event, which cuts the rate of new bitcoin creation, was expected to drive up prices. However, Bitcoin has dropped by around 15% since the halving took place.

Technical Analysis

From a technical perspective, senior market analyst Alex Kuptsikevich of FXPro believes that Bitcoin is entering a new stage of decline. He says that $55,700 and $51,000-52,000 are now potential price targets.

“However, both the FOMC announcements later today and monthly jobs data on Friday have the potential to accelerate or reverse the downtrend,” Kuptsikevich added.

Investor Response

The uncertain regulatory environment and potential for further interest rate hikes are causing investors to rethink their cryptocurrency investments. Some analysts are advising caution, while others believe that the current dip could present a buying opportunity.

As the Federal Reserve continues to grapple with inflation, the fate of cryptocurrencies remains uncertain. Investors are advised to carefully monitor the markets and consider their investment strategies accordingly.

also read:What caused the recent cryptocurrency market dip? april 2024

By Divya

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