Key takeaways:
- Bitcoin dropped from last week’s high above $22,000 to the 18,000 price level on Monday
- The total cryptocurrency market cap shed $200 billion in the past seven days
- The reason for the sell-off lies primarily in the upcoming rate hike, which could see the Fed resort to a multi-decade high rate increase
Bitcoin and Ethereum drop to their respective multi-month lows
The combined value of all digital assets in circulation decreased by more than $200 billion in the past week, leading to most coins recording double-digit losses in the time period – Bitcoin lost roughly 15% and revisited its June lows, while Ethereum lost over 24% and hit a two month low of roughly $1,330.
Bitcoin and Ethereum were far from being the only crypto assets to suffer from the broader negative market trend. In total, just 5 out of the top 100 cryptocurrencies have been trading in the green zone in the past 24 hours.
XRP, Cardano, and Dogecoin lost roughly -7% each, while Ethereum Classic and BitDAO posted double digits losses of roughly -13% and -12%, respectively.
The activity in traditional markets closely resembled what has been going on in the crypto sector, with S&P 500 losing nearly 6% in the past five days. As the drop in the value of the leading US stock index suggests, several major US corporations took a hit in the past week. Microsoft stock (MSFT) lost -7.9% in the past five days, Amazon (AMZN) -7.8%, and Apple (AAPL) -5.5%.
Investors anxiously await the FOMC meeting slated for September 21
Arguably the primary reason for the drop in the value of digital and traditional assets is the upcoming interest rate hike. Judging by the August inflation data, which showed a month-over-month increase in CPI, there is growing sentiment among investors that the Fed could decide to increase the federal funds rate by 100 basis points at the next FOMC meeting on September 21. However, it is worth noting that most projections forecast a third consecutive 75 bps hike, which would bring the Fed rate to 3.00% – 3.25%.
For context, the last time the Federal Reserve resorted to a full percentage point rate hike was in 1979, when then-Fed chairman Paul Volcker raised the rates from 11% to 12%.
According to a recent Financial Times report, the Fed could keep interest rates above 4% beyond 2023. Interestingly, 66% of economists polled in the report believe the US central bank will increase interest rates to 4-5%, while nearly a fifth of all respondents think restrictive monetary policy will push interest rates to 5-6%.
