The cryptocurrency market has been declining since yesterday afternoon, especially with a significant drop in the price of meme coins. The small-cap digital asset index experienced its largest decline in two weeks. In response to this, Stefan von Haenisch, the digital asset trading director, pointed out that the prospect of a decrease in the number of interest rate cuts by the Federal Reserve is affecting the entire cryptocurrency field.
(Previous Summary:
Federal Reserve Official Bostic: Expect Fed to Cut Interest Rates Only Once This Year, Premature Loosening is More Destructive)
(Background Supplement:
Bitcoin Breaks Through 68,000! Fed Interest Rates Frozen for the Fifth Time, Powell’s Dovish Stance “Three Interest Rate Cuts This Year” U.S. Stocks Hit a New Historical High)
As the outlook for loose monetary policy in the United States becomes more severe, Federal Reserve officials are currently considering reducing the magnitude of interest rate cuts this year. Against this backdrop, the U.S. dollar index surged past the 105 mark yesterday, and at the same time, the yield on 10-year U.S. Treasury bonds also increased. This economic trend seems to be impacting the enthusiasm for investing in the cryptocurrency market.
Stagnation of meme coins and other cryptocurrencies
Since yesterday afternoon, the cryptocurrency market suddenly declined. Bitcoin fell below $67,000 before the deadline, with a drop of over 5% in the past 24 hours. The market for meme coins was also greatly affected. Meme coins such as mfer, Pepe, WIF (dogwifhat), and Bonk, which had been popular in the market in the past few days, all experienced a decline of over 10% in the past 24 hours. This caused the small-cap digital asset index to experience its largest decline in two weeks.
In response to this, Stefan von Haenisch, the trading director of digital asset company OSL Group in Singapore, expressed that the decline in cryptocurrencies is influenced by the pessimistic expectations of the Federal Reserve’s interest rate prospects:
Since reaching a peak of $73,737.94 in mid-March, Bitcoin has fallen by over 9% as of the deadline. At the same time, the inflow of funds into U.S. Bitcoin spot ETFs has started to cool down. The net inflow scale from March 26th to 28th decreased from $417 million to $240 million, and further decreased to $180 million. Although the market has high expectations for the catalyst brought by the halving this month, the above factors have put pressure on the short-to-medium-term performance of Bitcoin and other cryptocurrencies.
Source: SoSo Value
Gloomy prospects for Fed interest rate cuts
According to CNN’s report, Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, recently presented a cautious view, suggesting that the Fed should only cut interest rates once this year. He explained that due to the “economic performance consistently exceeding expectations, demonstrating unexpected resilience and vitality,” he has reevaluated his views on the economic outlook.
In addition, considering that inflation in the United States has exceeded expectations, the job market remains stable and growing, and the stock market is showing a strong upward trend, some economists and professional investors believe that even if the Fed cuts interest rates before the end of the year, the number of rate cuts may be lower than the three times currently expected by Fed policymakers and the market, at most once, or even no cuts at all.
Marko Kolanovic, the global market strategist at JPMorgan, pointed out that the continuous rise in stocks and the cryptocurrency market has added trillions of dollars to investors’ wealth, making it difficult to control inflation under such circumstances. He mentioned:
Similarly, Hai Ha, the investment director at investment advisory firm Evergreen Gavekal, expressed the same view: “One rate cut is all there is. I’m not even sure about this one.”
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