The crypto market-wide correction in Q2 is set to change as investors are fervently waiting for Federal Reserve’s action at next week’s meeting. As Santiment pointed out, price volatility is expected to continue over the next few days.
In particular, Bitcoin’s price has shed nearly 40% from its peak of almost $70,000 per BTC late last year. Ethereum too is down by nearly half.
Other major coins like Binance’s BNB-2.7%, Ripple’s XRP -4.9%, Solana, Cardano, Terra’s luna, and Avalanche have all fared poorly, erasing $1.2 trillion from the combined crypto market in a matter of months.
Experts attribute its correlation to other risk assets, which as a whole have reacted in tandem to war in Ukraine, disruption in the supply chain owing to Covid cases surge in China, current interest rate hikes, and future balance sheets machinations by the Federal Reserve.
Joe Haggenmiller, head of markets at leading crypto finance company XBTO Group says “Macro uncertainty has driven all risk-on assets downwards over the last few months, including bitcoin.”
During the Covid-19 pandemic, the Federal Reserve came with a massive stimulus program doubling its balance sheet double, and interest rates fell to an all-time low. As a result, markets were flooded with liquidity in a bid to offset the economic damage of Covid-19 and lockdowns.
The Crypto market might recover if Fed adopts a less aggressive stance
After the pandemic showed signs of receding, inflation reached unprecedented levels causing the Fed to reverse its earlier policy.
Recently, Federal Reserve chair Jerome Powell signaled a half percentage point interest rate hike for the next week’s meeting. Due to this, the market is braced for the central bank to begin reducing its huge $9 trillion asset portfolio as it fights rising inflation.
But some feel the central bank might become less hawkish to avoid a recession-like scenario. Marcus Sotiriou, an analyst at the U.K.-based digital asset broker GlobalBlock said, “This is bullish for risk assets like bitcoin and equities in my opinion.”
Nonetheless, Bitcoin, crypto, and stock market traders are carefully watching for any telltale signs that the Fed might divert from its move when it meets this week.