The Federal Reserve Minutes Indicate That The Hammer Could Fall Harshly On Crypto Markets

• Fed minutes are indicative of a plan to aggressively raise rates.
• Fed officials during the meeting also expressed concern over cryptocurrencies and stablecoins. 
• Analysts are unsure of how this development may impact the cryptocurrency markets.

The release of the Fed’s January meeting minutes has made it clear that the Fed plans to raise rates more aggressively with inflation at record levels. In the released minutes, the Fed also broached the topic of crypto and stablecoins, raising concerns about the growth of the asset class.

Cryptocurrency Endangers Financial Stability

Since November 2021, the Fed has become more hawkish, shutting down a lot of stimulus programs to ease the printing of the dollar. However, up till now, the body has remained reluctant to raise rates. This stance has changed after the Federal Open Market Committee (FOMC) meeting in January revealed that the Fed was going to raise rates in March.

The minutes of the FOMC meeting in January have now been released, and they reveal that the Fed plans to raise rates more aggressively than was thought previously. It was decided that if inflation did not go down as expected, they would raise rates at a faster pace. The Labour Department report showed that inflation was at 7.5%, 0.2% higher than predicted.

According to the minutes, “If inflation does not move down as they expect, it would be appropriate for the committee to remove policy accommodation at a faster pace than they currently anticipate.”

The Fed also revealed that they were going to take trillions of dollars from the bond market. It said, “a significant reduction in the size of the balance sheet would likely be appropriate.” The Fed’s assets now total about $9 trillion, a $5 trillion increase from about the same time last year. However, rate hikes were not the only issue discussed by the Fed. The Fed also raised concerns about cryptocurrencies and stablecoins. 

Fed officials raised concerns about the rapid growth of the nascent market because they felt that the space may be posing an increased risk to financial stability. The minutes read, “Some participants saw emerging risks to financial stability associated with the rapid growth in crypto-assets and decentralized finance platforms.” Stablecoins were categorized as “another vulnerability in funding markets.” It is important to note that these sentiments may influence future policy around the nascent market.  

Market Reaction And Outlook 

Following the release of the minutes, there were retracements across the board in the crypto markets. Bitcoin fell from a high of $44,132 to a close of $40,538, a 9% drop. Other assets like Ethereum, BNB, and Solana also had 7%, 6.7%, and 8.8% drops from their highs. 

At the moment, the markets have not moved much from the close of yesterday’s market. Bitcoin is currently trading at $40,182 on major exchanges, 0.82% below the last day. 

Tom Lee, co-founder of Fundstrat Global Advisors, in an interview with CNBC, gave his view on Bitcoin with rumors of impending rate hikes. He expressed his belief that trillions of dollars will flow from bonds to equities, and a lot of that speculative capital will end up in crypto markets.