Over $100B was wiped off the cryptocurrency market this weekend after Treasury Secretary Janet Yellen issued a somber crypto warning.
As Bitcoin dropped to $27,000, it’s now at its lowest point since late 2020. The crypto market is feeling the pinch of recession fears, which could drive investors away from riskier bets. Dogecoin, TRON, and Avalanche all experienced significant double-digit declines in the past 24 hours. Ethereum crashed to $1,400 at the time of press, now down 70% since its all-time high near $4,900 in November 2021.
Crypto has been caught in the same spiral as equity markets
The crypto market has grown increasingly correlated with traditional equity markets in recent months. Crypto prices have fallen together with the S&P 500 down 2.9% Friday, and the Nasdaq down 3.5%. This latest gloomy set of events comes as the Federal Reserve is expected to further raise interest rates in a two-day meeting next week. Treasury Secretary Janet Yellen also warned of including crypto in 401(k) plans earlier this week, adding to the bearish outlook.
Initial forecasts of the interest rate hike predicted 50 basis points, but new information from the recently released consumer price index report has sparked fears that the Fed could take more aggressive action, and pave the way for a recession.
“The Federal Reserve is backed into a corner now,” opined crypto influencer Anthony Pompliano after the release of the consumer price index report.
Record high inflation in May 2022
External factors such as soaring energy prices and food costs pushed inflation to a record 8.6% in May, a figure not seen since 1981.
“[Friday’s] inflation report is the last big release before the Fed meeting next Wednesday,” says Alex Kuptsikevich, a senior analyst at FxPro. He goes on to say that a 40-year high inflation rate will put pressure on the Fed.
Goldman Sachs economists predict that the Fed will increase the interest rate by 0.5% on Wednesday, 0.5% in July, and 0.5% in September, while Barclays and Jefferies anticipate a more aggressive hike of 0.75% at Wednesday’s meeting.
Both crypto and stock markets have taken a hit over the last six months, with central banks ending Covid-19 stimulus checks and raising interest rates. “Crypto seems to be missing the perfect opportunity to demonstrate its forgotten role as a hedge against inflation,” says Rich Blake of crypto firm Uphold.