Cryptos Extend Losses Ahead of Fed, ECB Announcements

The risk-off sentiment in markets is here to stay, analysts say

article-image

Blockworks exclusive art by axel rangel

share

key takeaways

  • European Central Bank holds rare unscheduled meeting as market conditions worsen
  • S&P and Nasdaq hold steady while BTC and ETH fall ahead of interest rate announcement

The pullback in crypto markets continued Wednesday as firms cut staff while investors assess the damage from Celsius’ withdrawal halt and the apparent insolvency of longtime digital assets hedge fund firm Three Arrows Capital. 

The Federal Reserve is slated to announce an expected 0.75 percentage point interest rate hike Wednesday afternoon following the end of its two-day policy meeting. The European Central Bank, which was not scheduled to meet, issued a statement saying it would “apply flexibility” going forward to combat increasingly turbulent markets. 

“It’s become very clear that central banks are going to have to be very aggressive in countering mounting price pressures around the globe and that the probability of recessions has increased,” Craig Erlam, senior market analyst at OANDA, wrote in a note Wednesday. “Stagflation is not yet here but the risks around it have risen considerably in recent months which makes central bank responses all the more critical.” 

Many more rate hikes will be demanded in the short term to get a degree of control over runaway inflation, Erlam said — and markets are not reacting well. 

Bitcoin inched lower toward $20,000 early Wednesday while ethereum slid closer to $1,000. The tech-heavy Nasdaq and the S&P 500 were both trading slightly higher ahead of Fed Chair Jerome Powell’s press conference, signaling the market has largely priced in a 75-point hike, according to Erlam. 

“There is still a huge gap between nominal rates and real rates, so there is much more room for the Fed and other central banks to hike in the months to come,” said Mikkel Morch, executive director at digital asset hedge fund ARK36. “Investors can’t realistically expect risk assets to have a more sustained uptrend until the Fed pivots.”

The risk-off sentiment is likely not going to dissolve anytime soon, in Erlam’s estimation. 

“Risk appetite has been obliterated and the days of ultra-low rates are behind us, there isn’t the same speculative mood that existed when bitcoin was exploding higher,” Erlam said. “There may still be a belief that bitcoin can thrive in the future but something that offers little now beyond speculative rallies is going to continue to struggle. Especially when we’re seeing headlines like those around Celsius and Binance.”

[stock_market_widget type=”accordion” template=”chart” color=”#5C37D2″ assets=”NDAQ,^GSPC,BTC-USD,ETH-USD” start_expanded=”true” display_currency_symbol=”true” api=”yf” chart_range=”1mo” chart_interval=”1d”]


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2023

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Unlocked by Template.png

Research

With the spot ETH ETF approval, the institutions are coming. stETH - given its dominance in marketshare, existing liquid market structures, and highly desirable properties - is poised for institutions.

article-image

The QT taper begins this month…but what does that mean for markets?

article-image

Plus, the rise of RWAs could bring about a significant shift in how real-world investments are managed and accessed

article-image

The distributed cell plan provider started selling its own hotspots in October 2023

article-image

The Brazil-based asset manager’s filing comes during a year of milestone bitcoin and ether fund approvals

article-image

The purchase of five sites in Georgia set to help CleanSpark hit its mid-year operating hash rate target of 20 EH/s

article-image

Plus, it’s beginning to look like we may be in for a cruel summer