In a move that has left both traditional and crypto markets in disarray, the Federal Open Market Committee (FOMC) held its fourth policy meeting of the year on June 12 and decided to keep interest rates steady at their current range of 5.25% to 5.5%.
Bitcoin, Ether Shaken
This unexpected steadiness triggered a sharp reaction in the crypto world, with Bitcoin’s price plummeting from $70,000 to $66,000 and Ethereum experiencing a similar downturn. The FOMC’s reluctance to cut rates, despite previous indications of multiple reductions, has amplified volatility, leading to nearly $400 million in liquidations and shaking investor confidence across the board.
Federal Reserve Chair Jerome Powell emphasized that while there has been “considerable progress” in tackling inflation, the central bank is not ready to ease its tight monetary policy. Powell’s hawkish stance underscores the Fed’s commitment to its 2% inflation target, suggesting that premature rate cuts could undermine the progress made so far.
Crypto Markets Feel The FOMC Pinch
The FOMC’s decision and subsequent remarks from Powell had an immediate and dramatic impact on the crypto markets. Bitcoin, which had soared to an impressive $70,500 on Tuesday, plummeted to $67,220 following the announcement.
Ethereum followed a similar trajectory, dropping from over $3,700 to $3,400. The downturn was not limited to these two giants; altcoins like Cardano, Solana, and Ripple each suffered declines of at least 8%.
In the wake of these fluctuations, nearly $400 million worth of crypto assets were liquidated over the past two days. This wave of liquidations highlights the heightened volatility and investor anxiety permeating the market. Further exacerbating the situation, US spot Bitcoin ETFs recorded net outflows of $200 million, breaking a 19-day streak of net inflows.
Despite a brief moment of optimism following the release of the US Consumer Price Index (CPI) report—which showed a year-over-year inflation rate of 3.3% for May, slightly cooler than the anticipated 3.4%—the crypto market quickly reverted to its initial levels. This reaction underscores a persistent lack of investor confidence amid ongoing economic uncertainty.
Global Economic Strategies Diverge
While the US maintains a firm stance against premature rate cuts, other economic blocs are adopting different approaches. The European Union and Canada, both grappling with their own inflationary pressures, have opted to implement rate cuts this year. These divergent strategies reflect the varying economic conditions and policy preferences across different regions.
Back in the US, a survey backed by Grayscale reveals that 41% of voters are paying more attention to Bitcoin due to the country’s persistent inflation. This growing interest in cryptocurrencies highlights the increasing public scrutiny of traditional economic policies and the search for alternative investment opportunities in a high-inflation environment.
Featured image from Kiplinger, chart from TradingView
