Crypto Sell-Off Continues, As The Federal Reserve Plans An Interest Rate Hike

After a short-lived bounce, the crypto market entered yet another downwards motion during the Jan 27 morning trading session. The latest market selloff pushed the total crypto market capitalization down to a current level of $1,67 trillion, which is also a six-month low, as the total crypto market cap fell to such levels back in August 2021.

Furthermore, just from the start of 2022, the crypto market witnessed a 26% shrinkage, which equals to around $600 billion leaving the sector.

Bitcoin, the largest crypto to date, is leading the downtrend, wiping an additional 4% of its market share, trading at $36,883.28, according to data from CryptoBrowser.io. Ethereum copied Bitcoin’s trend and is currently trading at $2,494.89.

Source: CryptoBrowser

Other top-performing cryptos suffered even greater losses, with projects like Solana, Terra, Polkadot, and Avalanche taking bigger hits of 8-10%.

The reason for the downwards push, according to some experts, is the latest announcement from the U.S. Federal Reserve. Indeed, on January 26, the U.S. central bank noted that it will begin a series of interest-rate hikes, with the first one scheduled for March.

The interest rate hikes are a part of a wider effort to mitigate the pandemic-induced policies that have caused high inflation rates in the United States.

“Raising the benchmark rate, which has been pegged at zero since March 2020, will help prevent high prices from becoming entrenched,” Fed Chair Jerome Powell noted, as inflation is currently at a four-decade high of 7% (way above the Fed’s 2% target).

“The Fed is trying to do something impossible—not shock the market while being an aggressive inflation fighter,” global Chief Investment Officer of Guggenheim Partners, Scott Minerd, commented.

Another financial expert - SEC-registered investment adviser and Managing Partner and The Future Fund, Gary Black, noted that such a move is not necessarily bearish.

“Fed signaled it would start raising int rates “soon”, stuck with end of tapering in Mar, and made no mention of balance sheet timing. In sum, the Fed made no change to its previous communications. After the huge YTD selloff in the market, this is bullish.” Black added.

The traditional stock market also took a beating, with major indexes across the world have also taken a hit on the news. For instance, S&P 500 fell 2.25% while the Nasdaq lost 3.75%. Meanwhile, all major Asia trading bourses are going in the red.