Crypto Markets See Red as Federal Reserve Plans March Interest Rate Hike

Crypto asset markets have resumed their downtrend during the Jan 27 morning trading session following the latest announcement from the U.S. Federal Reserve.

Crypto markets have shed a further 3.3% on the day in terms of total market capitalization which has now fallen to $1.70 trillion. Over the past 12 hours, an additional $116 billion has left the space as the selloff continues.

The total market cap is now at a six-month low having dropped back to levels last seen in early August. Since the beginning of 2022, crypto markets have declined by 26% which equates to around $600 billion exiting the space.

Bitcoin is leading the slump with a 4.4% decline to $35,776 while Ethereum has lost a similar amount in a fall to $2,371 according to CoinGecko. The rest of the crypto market is a sea of red at the time of writing with Solana, Terra, Polkadot, and Avalanche taking bigger hits of 8-10%.

Federal Reserve hiking interest rates in March

The sell-off has been triggered by the latest announcement from the U.S. Federal Reserve. On Jan 26, the U.S. central bank stated that it will begin a series of interest-rate hikes in March.

These are part of a wider effort to reverse pandemic-induced policies that have caused painfully high inflation rates. Inflation is currently at a four-decade high of 7% (way above the Fed’s 2% target) in America, which is hurting consumers.

Increasing interest rates is one tool that the central bank to combat this runaway inflation. Fed Chair Jerome Powell said that “raising the benchmark rate, which has been pegged at zero since March 2020, will help prevent high prices from becoming entrenched,” according to reports.

In reaction to the news, global Chief Investment Officer of Guggenheim Partners, Scott Minerd, commented:

“The #Fed is trying to do something impossible—not shock the market while being an aggressive #inflation fighter.”

SEC-registered investment adviser and Managing Partner and The Future Fund, Gary Black, opined that the move was not necessarily bearish:

“Fed signaled it would start raising int rates “soon”, stuck with end of tapering in Mar, and made no mention of balance sheet timing.  In sum, the Fed made no change to its previous communications. After the huge YTD selloff in the market, this is bullish.”

Stock markets also takes a hit

Stock and crypto traders do not appear to be in agreement, however. The major indexes across the world have also taken a hit on the news.

The S&P 500 fell 2.25% while the Nasdaq lost 3.75% according to MarketWatch. All major bourses across Asia are in the red this morning.