At the September FOMC meeting, the Fed reiterated its willingness to continue raising interest rates and to keep them high until inflation is brought under control. This development poses double troubles for digital coins as, on the one hand, they are a non-profitable asset class, while, on the other hand, investors are likely to limit their exposure to risky assets as the tight financial conditions are expected to last longer. Furthermore, we should not forget that cryptos thrived in a time with diametrically opposite characteristics, that of excess liquidity and low interest rates in global markets.
Additionally, Jerome Powell acknowledged that the chances of a soft landing are diminishing as the Fed’s top priority remains restoring price stability, suggesting a recession cannot be ruled out. Of course, this scenario could have catastrophic effects on risky assets like cryptos.
Stocks vs Cryptos
Although the correlation between Bitcoin and stock markets is currently at record levels, the broader crypto space not only outperformed but also made massive moves against stock indices on Thursday. However, it is still too early to call for a correlation break as the immaturity of the crypto markets is often responsible for some wild swings.
First, significant events like the FOMC meeting often lead to overreactions in crypto markets due to the relative inexperience and lack of expertise of their participants. Therefore, these spikes tend to recede faster than the modest reactions in the stock space. Additionally, cryptocurrencies are currently trading closer to their 2022 lows than stocks, so declines to buy the dip levels have solid support, while the downside potential for stocks is actually greater.
Systemic ailments reappear
In 2022, the crypto market crash has continuously exposed flaws and flaws in multiple cryptocurrency projects and business models, dealing significant blows to the broader crypto space’s trustworthiness. Although these phenomena had recently died down, new scandals began to appear in the blockchain world.
The founder of the Luna-Terra “stablecoins” has an arrest warrant in his name from South Korean authorities over allegations of violating several capital markets laws. Additionally, crypto brokerage firm Wintermute reported last Tuesday that hackers stole around $160 million worth of digital assets, but without affecting the companies’ solvency.
Technical levels to watch
From a technical perspective, Bitcoin is currently trading around pre-FOMC levels despite its recent decline.
Broader weakness could see the price test its recent low of 18,150, breaching which could draw the spotlight on 2022 low of 17,588.
On the downside, bullish action might face initial resistance at 20,400 before examining the recent high of 22,775.