The Defiant

Markets Slide As Fed Says Higher Rates Are Here To Stay

ECB Follows With 50bps Hike

Markets Slide As Fed Says Higher Rates Are Here To Stay

Markets turned lower after the Federal Reserve raised benchmark U.S. interest rates by 0.50% on Dec. 14 and the European Central Bank followed suit on Dec. 15. 

Bitcoin is down 1.2% in the last 24 hours. Ether, the second-largest crypto asset, is down 1%, and Binance’s BNB is down 0.6%. 

ETH Price
BTC Price
BNB Price

ETH Price + BTC Price + BNB Price, Source: The Defiant Terminal

Major U.S. stock indices also took a bearish turn, with the Nasdaq, Dow Jones Industrials, and S&P 500 all closing down over 2% on the day. 

It’s been a rollercoaster week that started off in the green, with BTC and ETH hitting four-week highs after U.S. inflation numbers came in lower than expected on Dec. 13. 

The Fed’s 50 basis point hike comes after four straight raises of 0.75% this year, which have depressed crypto prices as liquidity has dried up and acted as an increasingly powerful magnet to attract capital away from DeFi to assets like U.S. Treasuries. 

While few were caught off guard by the 50 basis point raise, the most notable bearish signal was the Fed’s Summary of Economic Projections, which showed that 17 of 19 Fed officials anticipated the Federal Funds Rate to stay above 5% during 2023. 

This indicates that the central bank isn’t shying away from keeping rates elevated at levels last seen in 2007. That’s an intimidating prospect for crypto investors who have never navigated an environment where the federal funds rate is above 3%, let alone 5%. 

Fed Dot Plot

Not everyone is taking the Fed’s predictions so seriously, however. “The Fed voters are the worst predictors of their own future votes,” Jordi Alexander, the CIO at Selini Capital, quipped

Chainalysis Report

And still, despite the economic headwinds and FTX’s collapse, crypto investors may have already taken harder lumps earlier in the year — a Dec. 14 report from Chainalysis shows that realized losses from FTX’s collapse came in at $9B, compared with $20.5B stemming from the Terra/UST collapse and $33B after Celsius and Three Arrows Capital imploded.

Realized Crypto Losses. Source: Chainalysis

Looking forward to the next Federal Open Market Committee meeting, CME FedWatch shows a 75% probability of a 25 basis point hike in February 2023. 

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