Cryptocurrencies—namely Bitcoin (BTC) fell after Federal Reserve chairman Jerome Powell made some remarks on Friday (Aug 26) that went against loosening monetary policy prematurely.
Mr. Powell stated in a speech at the Fed’s annual economic symposium in Jackson Hole that the Fed will be taking more aggressive actions to raise interest rates in order to fight inflation.
“These are the unfortunate costs of reducing inflation,” Powell said, noting that “a failure to restore price stability would mean far greater pain.”
Following Powerll’s remraks, BTC dropped (Aug 27) below the bottom end of its $20,000-24,700 range it had been trading since July 14— a 3.4% decline for the day and more than 56% year-to-date.
“Powell’s admission that there will be pain before there is relief is rather hawkish,” said Josh Olszewicz, head of research at asset management firm Valkyrie Investments.
Various other well-known cryptocurrencies including Ether (ETH), Solana (SOL), Ripple (XRP) and Avalanche (AVAX) all decreased in value by as much as 6.3%, 5%, 1.80% and 6.2%, respectively.
The dip seems to indicate that a slide in crypto values is re-accelerating. Nevertheless, some analysts are saying the dip provides a buying opportunity.
Onchain metrics “signal that the price is at the accumulation zone, which has been historically market bottom formations and value investing”, CryptoQuant said in a report on Thursday.
Meanwhile, Fundstrat’s Mark Newton wrote in a Friday note to clients that “Friday’s break looks important and negative in the short run but should line up with buying opportunities into early September as cycles remain bullish and project higher prices into November 2022.”
Investors, particularly those invested in crypto, have been looking for a sign from Powell that the Fed might soon start to slow down its rate increases later this year if inflation starts to ease off. But it doesn’t seem like that time is near.
During the coronavirus lockdowns, cryptocurrency prices surged as investors sought to take advantage of low interest rates. With rates at historic lows, many investors turned to alternative investments such as cryptos in an effort to preserve their capital and generate returns.
Cryptocurrencies offer the potential for high returns, and their prices are often uncorrelated with traditional asset classes such as stocks and bonds. As a result, they can provide a valuable diversification tool for investors. In addition, with interest rates at record lows at the time, the case for investing in cryptocurrencies remained strong.
For these reasons, low interest rates are seen as benefiting the cryptocurrency market. Based on Powell’s comments, though, a low interest rate environment, in the near term at least, seems highly unlikely.
Disclaimer: This article is provided for informational purposes only. It is not intended to be used as investment or financial advice
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