In the hours leading up to a significant Federal Reserve meeting, major cryptocurrencies including Bitcoin and Ethereum have experienced sharp declines, intensifying market anxieties about the future of interest rates and their impact on risk assets. Bitcoin plummeted to just around $57,000, while Ethereum dropped below the $3,000 mark, showcasing a broader downturn across the crypto sector.
This decline marks one of the most notable retreats in recent months, with Bitcoin reaching its lowest level in over two months. As of the last report, Bitcoin was trading at approximately $57,505.24, marking a 6.3% decrease within a single day, while Ethereum and other major cryptocurrencies also saw significant losses.
The drop comes amid growing concerns over the Federal Reserve's upcoming decision on interest rates, with the Federal Open Markets Committee (FOMC) scheduled to release its decision at 2 p.m. Eastern Time today. The anticipation has led to a volatile environment for derivatives traders, with $457 million in crypto futures positions liquidated in the past 24 hours alone, the majority of which were long contracts.
Market analysts attribute the sell-off to a combination of factors including a broader risk-off sentiment and specific crypto market dynamics. Geoff Kendrick, head of digital asset research at Standard Chartered, noted, "The driver seems to be a combination of crypto-specific and broader macro factors." He pointed to significant outflows from U.S. spot bitcoin exchange-traded funds and deteriorating macroeconomic conditions as key drivers behind the recent price actions.
Investors have been particularly jittery as inflation remains a hot-button issue, with the U.S. inflation rate last recorded at 3.5%, up from previous months and well above the Fed's target of 2%. This has dampened hopes for an imminent reduction in interest rates, with many traders now not expecting rate cuts until at least December.
The current high interest rates, set between 5.25% to 5.5%, have been a method for the Fed to curb inflation, but they also make less risky investments like U.S. Treasuries more attractive compared to volatile assets like cryptocurrencies.
Adding to the market's troubles, the crypto community also reacted to news that Changpeng Zhao, former CEO of Binance, was sentenced to four months in prison over charges related to money laundering, further exacerbating the bearish sentiment.
This financial backdrop contrasts starkly with earlier this year when the Swiss Central Bank cut interest rates, sparking brief optimism that other major central banks might follow suit to support more robust economic growth. However, such hopes have faded as the Fed appears steadfast in its cautious approach towards rate adjustments amidst persistent inflationary pressures.
