The crypto market appears to be on a downward spiral, with major cryptocurrencies experiencing significant declines. This is due to a cocktail of macroeconomic fears, uncertainties surrounding the US debt ceiling and anticipation of the upcoming Federal Reserve minutes.
The world’s largest cryptocurrency, Bitcoin, is down 3.3 percent in the past 24 hours. Ethereum, the second largest cryptocurrency, followed a similar trend with a drop of 3.2 percent, while Litecoin fell as much as 5.5%.
What is the reason for the decline?
The current downward trend in the crypto market seems to be mainly caused by a changing investor view of the Federal Reserve and its upcoming interest rate decisions. While the majority of investors, about 72%, still believe the central bank will not raise interest rates, that percentage has fallen significantly from recent forecasts.
In other words, there is a growing number of investors considering a possible rate hike by the Federal Reserve, adding to the pressure on crypto prices.
Cryptocurrencies have suffered in the past year from rapidly rising interest rates, which made these risky assets less attractive. Despite this, they have largely recovered this year, bolstered by expectations that the Federal Reserve would end its series of rate hikes.
However, despite a significant drop in inflation this year, it is still significantly above the Federal Reserve’s 2% target. This, along with a robust labor market, has led investors to question whether the Federal Reserve has seen enough evidence to abandon its rate hike campaign.
The unresolved issue of the US debt ceiling also adds to the uncertainty. The approaching deadline of June 1, when the US could potentially default, is driving up government bond yields and encouraging investors to mitigate risk. It remains to be seen how this complex combination of factors will unfold and affect the crypto world.
An important decision
Tonight, more light may be shed on the future direction of US interest rates as the Federal Reserve releases the minutes of its recent meeting. The main question investors are seeking answers to is whether the Fed will hold or adjust rates at its upcoming June meeting. This, combined with the ongoing uncertainty about raising the US debt ceiling, is fueling concerns among investors.
Under these circumstances, it is to be expected that the prices of cryptocurrencies will remain under pressure. The crypto market, like other financial markets, reacts sensitively to uncertainties and is expected to stabilize once there is clarity on the interest rate policy of the Federal Reserve.
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