The price of Bitcoin, Ethereum, and other major cryptocurrencies slumped on Monday as the Federal Reserve is expected to increase its benchmark interest rate by 0.75%, the largest hike in nearly three decades.
At the time of writing, Bitcoin slid to a weekly low of about $21,935, down 2.8% over the past 24 hours, with Ethereum, the market’s second-largest cryptocurrency, shedding nearly 5% for the day to the current value of $1,528.
Among the ten largest crypto assets, Cardano is the heaviest hit with a drop of almost 7% over the day, followed by Solana (-4.35%), Dogecoin (-4.4%), and XRP (-4.15%).
The combined market capitalization of all cryptocurrencies has meanwhile dropped from $1.08 trillion last Wednesday to $1 trillion by press time, according to data provided by CoinMarketCap.
Price action precedes the fed’s meeting on Tuesday, causing tension in crypto as a 75bps surplus is expected at the meeting.
Interest rates and crypto
FED will increase the interest rate, which it uses as a weapon against growing inflation, from 2.25% to 2.5% (these interest rates are for banks)
When the federal funds rate goes up, this impacts the entire economy: adjustable-rate mortgages, home equity lines of credit, credit cards, student debt, and savings deposits, and other loans are becoming more expensive. The main idea here is that less debt creates less consumer demand.
Interestingly, though, U.S. inflation has actually accelerated since the Fed began raising rates in March—with surging prices for gas, food, and rent catapulting the figure to a fresh four-decade high of 9.1%.