Today is a bearish day for crypto investors. In fact, the price of Bitcoin (BTC) fell sharply yesterday, hurting the rest of the market. Although BTC is still above the magic $100,000 level, it has lost much of its value. And altcoins like Ethereum (ETH), Ripple (XRP) and dogecoin (DOGE) are already in trouble.
Financial markets retreat on inflation fears
It all started last night. At 8:00 p.m., the Federal Reserve (read: the US central bank) announced that it would cut interest rates for the third time this year. More precisely, 0.25%, as also expected.
The drop in interest rates is good news for the cryptocurrency market. In effect, it makes borrowing cheaper, meaning more money circulates through the financial system. And investors look for riskier investments when interest rates are lower, which of course includes bitcoin and cryptocurrencies.
But then, why has bitcoin fallen so much?
Because central bank policymakers are much more pessimistic than expected for next year. The market was expecting four more interest rate cuts of 0.25%, but the bank now only expects two.
Interest rate cuts are a tool to help revive the economy, but the price to pay is increased inflation. And that’s exactly what the Federal Reserve is concerned about right now.
In September and October, price increases were larger than expected and Fed Chief Jerome Powell said it could take up to two more years to reach the inflation target of 2 %.
The market was therefore negatively surprised, which pushed the financial markets downward.
Bitcoin Falls to $98,000, but Quickly Recovers
As we could read in the bitcoin news This morning, the price of bitcoin was in free fall last night. When the interest rate decision was announced, investors were still paying $104,600 per bitcoin, but less than two hours later the price was just above $100,000. And overnight, bitcoin took another hit, falling to a low of $99,000.
In total, bitcoin fell more than 5%. But in the meantime, the price has already returned to almost $102,000.
Bitcoin has therefore already rebounded strongly and is only down a little over 2% compared to 24 hours ago. However, altcoins are still much worse. Ethereum records a loss of 5%, XRP and cardano (ADA) 6% and dogecoin 7%.