Crypto Market Plunges Amidst Heightened Uncertainty Ahead of US Inflation Data
The cryptocurrency market is currently experiencing significant turbulence as the US Federal Reserve is set to unveil updated economic projections this week. Market observers and investors anticipate that these projections will indicate a reduction in interest rate cuts, despite slower economic growth.
Fed Chair Jerome Powell has cautioned that actual outcomes may differ from the projections, as unexpected economic conditions have posed challenges to the Fed’s previous forecasts. While key inflation indicators have remained stable following aggressive rate hikes in 2022 and 2023, economic risks have become more nuanced, with conflicting data. For example, although US companies added 272,000 jobs in May and wages saw a 4.1% annual increase, the unemployment rate also rose to 4%.
Consequently, the Fed is exercising caution regarding rate cuts until there is significant improvement in inflation. Policymakers are questioning whether achieving the 2% inflation target is possible without strict monetary policies. This approach to rate cuts diverges from that of some global counterparts, such as the European Central Bank (ECB) and Bank of Canada (BoC), which have recently implemented rate cuts. JPMorgan and Citigroup even abandoned their predictions for a rate cut in July after the release of the jobs report. Currently, most economists and professional Fed watchers anticipate one or two rate cuts occurring later this year, possibly in September or December.
Various financial institutions have also made their projections regarding anticipated rate cuts by the Fed in 2024. These projections suggest that the first rate cut could happen as early as September, while some foresee it occurring as late as December.
Matteo Greco, a research analyst at Fineqia, shared his insights on the situation, stating that less restrictive monetary policies generally favor risk-on assets such as stocks and cryptocurrencies. This is particularly relevant when rate cuts do not signal an impending recession.
At present, Bitcoin (BTC) is trading at $67,482, reflecting a 2.8% decline over the past 24 hours. Similarly, major altcoins like Ethereum (ETH) and Solana (SOL) have dropped by 3.9% and 3.4%, respectively, within the same period. The total crypto market capitalization currently stands at $2.59 trillion, exhibiting a 2.7% decrease over the aforementioned timeframe.
These developments hold significant importance for crypto traders and investors, as the Fed’s interest rate decisions directly impact market liquidity, borrowing costs, and overall economic conditions, all of which contribute to the dynamics of the cryptocurrency market.