The slight recovery in the crypto markets this week all but retracted as major cryptocurrencies dipped up to 7% in the past 24 hours after a hawkish U.S. Federal Reserve outlook to cut back on inflation.
Wednesday, Fed Chair Jerome Powell said the central bank was ready to raise interest rates in March and could even hike rates “at every meeting” to tackle concerns of inflation after a record asset-buying program. Seven more meetings are scheduled for this year.
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Asian markets were spooked on Thursday. Hong Kong’s Hang Seng Index, which tracks the 60 largest companies, was down 2%, while South Korea’s KOSPI ended the day with a 3% decline. In Europe, Germany’s DAX, which tracks blue-chip companies, started the day with a nearly 1% drop. Futures of U.S. stock markets fell marginally in pre-market trading.
The decline in equities also passed on to the crypto markets, which functions as a risk asset class in investor portfolios. Bitcoin (BTC) and ether (ETH), the world’s two largest cryptocurrencies by market capitalization, fell 4% in the past 24 hours to support levels. Bitcoin fell under $37,000 to hit support at $35,500 before gaining over $1,000 at the time of writing.
“Bitcoin showed positive dynamics all day against the backdrop of growing stock indices,” analysts at FxPro told CoinDesk in an email. “Up until the Fed meeting, the first cryptocurrency was gaining over 6%, hitting 5-day highs above $38,800. However, BTC began to fall almost immediately after the announcement of the results of the Fed’s two-day meeting”
“The regulator announced a curtailment of bond purchases in early March, as well as an imminent rate hike, followed by a reduction in the Fed’s balance sheet,” analysts added.
Major cryptocurrencies like Avalanche (AVAX) and Solana (SOL) fell as much as 8% during Asian morning hours, while tokens of emerging blockchains, such as Cosmos’ ATOM and Near’s NEAR token fell 13%.
Layer 1, or base, bets by crypto investors fueled price rises in ATOM, NEAR and Fantom’s FTM tokens in the past months, which was buoyed by investors’ search for yields and upside outside of the Ethereum ecosystem. But such tokens have been among the worst performers in the recent crypto sell-off, falling sharply in the past month alone.
In the past week, SOL was down 34% while NEAR investors nursed losses of 33%. Terra’s LUNA, Polkadot’s DOT and Cardano’s ADA tokens saw similar decline in the same period, data from analytics tool CoinGecko shows. Bitcoin, in contrast, fell 13%.
A saving grace among top cryptocurrencies by market capitalization were the two tokens of Theta Network’, THETA and TFUEL. The tokens power services on the blockchain-based video sharing platform and were up 13% and 22% respectively in the past 24 hours. The move came ahead of an airdrop to THETA holders scheduled for Feb.1, which may have fueled interest among investors and traders.
Crypto markets staged a slight recovery at press time, with some investors continuing to downplay the effects of Fed policy on the broader market.
There are “lots of reasons to believe that the secular macro rate of interest is still low. Interest rates are low because of incremental technology growth,” Haseeb Qureshi, founder of crypto investment fund Dragonfly Capital, said in a telephone interview.
“Crypto is one of the few things that people realize has broad growth potential,” Qureshi added.