- The crypto winter is here, brought partly by adjustments to the US monetary policy and looming regulatory crackdown.
- Russia, on the other hand, is in a tug of war between crypto endorsers and those calling for a complete ban.
On Wednesday, the Fed held a Federal Open Market Committee (FOMC) meeting that has impacted both crypto and stock markets. According to Fed Chairman Jerome Powell, the Fed will not adhere to any set schedules. Instead, alterations will be made to its policy with evolving market conditions.
However, as mentioned earlier, the first interest rate hike is due in March. Additionally, the Fed plans to end its bond purchases, and significantly reduce its asset holdings – shrinking its nearly $9T balance sheet within the next two meetings. All these moves are intended to reverse the pandemic era-induced loose monetary policy, including quantitative easing, to stave off the highest inflation in a generation.
The effect of events in the US on crypto
As the meeting came to an end, the negative market reaction became evident. Stocks saw wild swings throughout all of Powell’s press conference. The S&P 500, for instance, rallied higher then fell by about 1.6 percent. Meanwhile, the Dow Jones Industrial Average fell 325 points.
As for the crypto markets, Bitcoin rose briefly to $39K before receding to the $36K level. The crypto markets and stock markets have been said to have increased interrelatedness of late. Correlation between Bitcoin and the S&P 500 rose 36x between 2020-21, according to the International Monetary Fund (IMF). Stock indexes have seen lows unprecedented in the last couple of months, while the crypto market has shed over $1 trillion market value since last November.
Moreover, the Biden administration is reportedly drafting an executive order covering the risks and benefits crypto-assets pose. Analysts recently told CNF that the rise in interest rates, quantitative easing, uncertainty around the Omicron variant, and regulatory crackdown, are what could be contributing to widespread uncertainty and the recent crash in both crypto and stock markets.
Indecision in Russia
As for Russia, the country has been swinging back and forth in terms of endorsing cryptocurrencies. A week ago, the nation’s central bank proposed a blanket ban on crypto. However, government institutions seem to follow a different path – seeking regulation rather than restriction.
Read More: Bank of Russia seeks China-like ban on cryptocurrencies and crypto-related activities
Yesterday, Russian President Vladimir Putin championed crypto, saying the country held a “competitive advantage”, especially in mining. Russia, he says, has surplus electricity and well-trained personnel suitable for the crypto industry. Electricity in Russia goes for $0.06/kWh for households and $0.08 for businesses. In comparison, households in France pay $0.2 per unit while businesses pay $0.14.
Additionally, Putin has plans for his government to have a sit-down with the nation’s central bank to reach a consensus regarding cryptocurrency.
It is worth noting that Putin expressed skepticism in the industry in November, saying crypto is “not backed by anything [and]the volatility is colossal.” His recent change in tone might point to accommodative crypto policies being made in the country, to the advantage of the whole digital assets economy.
Related: President Putin: Cryptocurrencies may be used in the future for hoarding
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