Fed interest rate decision sends crypto market downhill

 

The recently published minutes of the last Fed meeting are putting the stock market in the red. The crypto market is also bleeding.

No temporary inflation: The monetary authorities of the world reserve currency, the US dollar, have recognized the signs of the times and are holding out the prospect of a faster tightening of monetary policy.

The minutes said that interest rates could rise significantly earlier than planned a month ago. The extensive bond purchases are also to be gradually scaled back from mid-January:

The Federal Open Market Committee (FOMC) has decided to reduce monthly net purchases of government bonds by $ 20 billion and mortgage-backed securities by $ 10 billion, beginning with the purchase program in mid-January .

Statement FOMC Meeting

In addition, the refinancing rates (Federal Fund Rates), which are commonly interpreted as the key interest rate, are to be gradually increased until 2024.

"The participants expect a gradual tightening of monetary policy [...]", it says in the statement of the monetary authorities: inside.

The sudden tightening of monetary policy can be attributed to rising inflation expectations. The rate of price increase is currently 6.8 percent - a figure that the United States last had in the 1980s. In this country too, expectations have recently been raised to 5.3 percent.

Interest rate hikes are pushing markets down

As expected, the markets will give way when the minutes become known on January 5th. Above all, tech stocks are bleeding. The tech-oriented Nasdaq 100 index is 3.3 percent in the red compared to the previous day; if you set the period to 48 hours, you even get 5 percent.

he more broadly oriented S & P500, however, got off a little more lightly. The most important index of the US markets was only 1.8 percent.

ess badly affected: The SPX index.

Tech stocks are typically more sensitive to monetary policy tightening than established stocks. The reason is their higher risk assessment and growth orientation, which require favorable interest rates. Higher interest rates then mean more expensive refinancing and potentially less growth. In anticipation of this connection, investors tend to take refuge in solid stocks.

Bitcoin is giving way in almost double digits

The crypto sector is also affected by the rate hikes. After all, Bitcoin and Co., similar to tech stocks, are considered risk assets. Bitcoin, for example, has lost 9.2 percent - but is still comparatively “solid”.

Coins like Ethereum (13.4 percent in the red) or Polkadot (14.3 percent in the red) are bleeding much more. To make matters worse, the crypto sector usually does not generate any cash flow: Those who invest in Bitcoin are speculating on price gains, but do not expect a dividend payment. So the sale came with an announcement.

Florian Döhnert-Breyer, Managing Director of F5 Crypto , sees it similarly. 

A connection with the latest FOMC publications by the US Federal Reserve is obvious: The prospect of higher interest rates strengthens the USD against other currencies. This has created uncertainty in the global equity market as bonds could become more attractive. The crypto market was also hit and leveraged long positions of $ 133 million were liquidated. Fundamentally, nothing has changed in terms of crypto assets.

If the crash proves one thing, it is the importance of the crypto sector in the global financial sector. At 800 billion US dollars, Bitcoin is no longer a small fish, but rather plays a role in the global financial structure. 

"From our point of view, however, it is particularly exciting to see how this explanation is taken for granted by many analysts and market observers: In our eyes, this shows how far the integration of crypto and traditional financial markets has already progressed."

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