The Fed strikes again.
What happened ?
The crypto-currencies are down across the board today and altcoins are the hardest hit. Smaller cryptocurrencies are generally more volatile than their larger rivals, and this can lead to big moves.
As of 3:20 p.m. ET, in the past 24 hours, Cardano (CRYPTO:ADA) has lost up to 3.6%, Polkadot (CRYPTO:DOT) has lost up to 7.3%, and Crypto. Read also: SHIB coin: The main Spanish cryptocurrency exchange adds the Shiba Inu (SHIB) token.com Coin (CRYPTO:CRO) lost 5.5%. Over the past week, these cryptocurrencies are down 5.8%, up 0.6%, and down 7.4%, respectively.
So what ?
The Federal Reserve has been the talk of the market for the past 24 hours, after signaling that it may raise rates “sooner or at a faster pace than participants had anticipated”. March has been seen as the likely time when short-term rates will start to rise and the market is worried that it could be even sooner. See also: The failure of the SHIBA INU: 3 reasons why the Shiba Inu could be the worst cryptocurrency in 2022.
Fed officials have also raised the possibility of shrinking its balance sheet in 2022, which would involve significantly reducing the bond purchases it has made in the Treasury market and in the corporate bond market. This is called quantitative easing, which has kept interest rates low for most of the past decade.
This news is not entirely surprising, but the market had held out hope in recent weeks that the stimulus measures and low rates would be maintained for a little longer. The Fed seems to be considering ending these policies even sooner now.
How does crypto get involved in these moves? The reality is that cryptocurrencies trade with growth stocks right now, so when news hits the market that hurts growth stocks, cryptocurrencies usually fall with them. This is known as a ‘risk-off’ move, where riskier assets are sold off in favor of more ‘safer’ assets, and this dynamic has hurt crypto today.
Cryptocurrencies are generally volatile, but the last 36 hours have been unusually choppy for crypto markets. Many cryptocurrencies have fallen more than 10% and they don’t seem to be recovering very quickly. See also: Shiba Inu crypto review: SHIB token price is skyrocketing on Robin Hood speculation.. This could be part of a long-term market trend away from risky assets like growth stocks and cryptocurrencies, which is slowly driving prices up.
When it comes to altcoins Cardano, Polkadot, and Crypto.com Coin in particular, I would be more concerned about building their long-term ecosystems. They are all trying to attract users and developers with the aim of building an ecosystem of decentralized finance, NFTs, marketplaces and other applications on their blockchains. It is this development that will ultimately bring value to long-term investors, and the Federal Reserve or a sell-off in growth stocks will not stop this innovation.
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