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The price of bitcoin has fallen about 40% from its peak of almost $ 70,000 per bitcoin last year, where the price of ethereum has also almost halved. Other major coins, including Binance’s BNB
Now, after Federal Reserve Chairman Jerome Powell announced that a half percentage point rate hike was on the table at next week’s meeting, the market is gearing up so the central bank can begin trimming its massive portfolio of $ 9 trillion in assets as it fights runaway inflation.
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“Macroeconomic uncertainty has driven all risk assets down over the past few months, including bitcoin,” said Joe Haggenmiller, head of markets at leading crypto-finance firm XBTO Group, in comments via email.
“The price volatility of the bitcoin market over the past few weeks can be largely attributed to its correlation with other risky assets, which have generally moved in response to the conflict in Ukraine, supply chain problems due to rising Covid cases in China and ongoing interest rate hikes. and future balances from the Federal Reserve. “
At the start of the Covid-19 pandemic, the Federal Reserve launched an unprecedented stimulus program that saw its balance sheet double and interest rates fall to historic lows as it flooded markets with liquidity in an attempt to offset the economic damage from Covid-19. and lockdowns. As the pandemic began to subside and inflation rose, the Fed turned to an attempt to cool the economy.
“In my opinion, it is appropriate to go a little faster [than the Fed has recently]”Powell said last week, following a roundtable discussion with the President of the European Central Bank, Christine Lagarde, host of the International Monetary Fund, adding that he believed,” there was something in the idea of loading these movements upstream.
Economic data this week, however, showed that the U.S. economy fell in the first three months of the year, down 0.4% in the first quarter, the weakest quarter since the early days of the pandemic.
“This is bullish on risk assets like bitcoin and equities in my opinion, as the Federal Reserve may become less hawkish to avoid a recession,” wrote Marcus Sotiriou, an analyst at the UK-based digital asset broker. -United GlobalBlock, in an email Note.
Bitcoin, crypto and exchange traders are keeping a close eye on signs that the Fed will deviate from its telegraphed move at its meeting this week.
“An increase of more than 50 basis points that deviates from the current consensus could lead to lower risk markets, especially bitcoin,” Haggenmiller added. Either way, the bitcoin market has proven to be relatively robust in the long run through periods of uncertainty.
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Meanwhile, the bitcoin and crypto community welcomed a number of positive developments this week, including the Central African Republic becoming the second country after El Salvador to adopt bitcoin as a legal tender, and investment giant Fidelity announcing the launch of 401,000 bitcoin accounts.
“Recently, bitcoin has reached a new stage of mainstream adoption, with companies and countries now boarding bitcoin without waiting for the price of bitcoin to skyrocket,” said Alex Adelman, CEO of the bitcoin rewards app Lolli.
“This lack of correlation between price movements and growing mainstream adoption shows that more and more institutions are grasping the enormous utility of bitcoin as a currency and asset store and its inevitable and powerful role in our financial future.”