After Fed hinted that it would accelerate interest rate hikes, U.S. stocks fell short-term, and Bitcoin plummeted.
The masses’ passion on Bitcoin investment is fading, and trading activities are sluggish. Data shows that after several consecutive declines, the trading volume on the exchanges on Tuesday was only at a concerning level of 4.8 billion U.S. dollars, a significant drop from the US$13.1 billion a year ago, and it is also well below the annual average of approximately US$9.2 billion.
On January 5, the Federal Reserve announced the minutes of the December FOMC meeting. In addition to the market’s expected acceleration of Taper and early interest rate hikes, the committee members’ discussions on reducing the balance sheet also put pressure on venture assets.
It is reported that at the meeting, Fed maintained the current interest rate. At the same time, it doubled the rate of reduction of its bond purchase program to $30 billion per month as expected.
In terms of the highly concered interest rate dot plot, two-thirds of the committee members believe that interest rates should be raised at least 3 times in 2022, another 3 times and 2 times respectively in 2023 and 2024
According to the minutes, meeting participants generally agree to that, given their outlook on the economy, labor market and inflation, it may be necessary to raise the federal funds rate earlier.
Some also said that after the start of interest rate hikes, it may be appropriate to reduce the size of the balance sheet at a faster rate than before.
The capital market witnessed a pessimistic trend after the announcement of the meeting minutes. The three major U.S. stock indexes fell across the board. The Nasdaq fell nearly 3%. Meanwhile, benchmark 10-year Treasury yield rose by 5 basis points to 1.70%.
The crypto market has seen a more severe panic: Bitcoin once fell below 43,000 US dollars, with a 24-hour drop of more than 6%.
Nowadays, traditional finance and crypto market are closely integrated.
Traditional finance turbulence tends to spread to the crypto market.
More and more people’s concerns about another slowdown in the economy are intertwined with the Fed’s growing concerns about inflation.
Last month, Fed Chairman Jerome Powell stated that the central bank is ready to withdraw from easy money policy at a faster than expected pace, and is ready to raise interest rates in the first half of 2022.
Higher interest rate makes speculative assets such as Bitcoin less attracting. When the Federal Reserve raised interest rates in 2017 and 2018, the price of Bitcoin fell sharply — a Bitcoin winter, addressed by cryptocurrency enthusiasts.
“The Fed is on a glide path to hiking in March,” commented the Head of Economics at Renaissance Macro Research Neil Dutta. The man also estimated the fed to announce the reduction of the balance sheet by the end of 2022, which means Fed rate hikes come faster than we used to expect. This sharp drop in Bitcoin is a direct manifestation over the fear of rate hike.
