Bitcoin and other cryptos slump as the Fed gets ready to raise interest rates again

Bitcoin suffered its biggest single-day percentage loss in more than 2 months, sliding 4.5% on Monday, though the crypto pared most of that loss overnight and is down just under 1% Tuesday morning, trading around $23,000. 

Ethereum is flat ahead of the central bank meeting, trading at $1,585. The industry’s market capitalization maintains a $1 trillion value. 

Dogecoin, the meme token pumped by Twitter CEO Elon Musk, surged 10% on Tuesday. The rally comes following a Financial Times report that Twitter engineers will build its payments product so that crypto could be added in the future. 

“We’re seeing [bitcoin] face some key resistance levels, especially around the 200-week moving average. At the same time, it would appear that price action has stalled while the market awaits news from the [Federal Open Market Committee] meeting this week and the US jobs report,” Nathan Thompson, lead tech writer at crypto exchange Bybit, told Insider.

Thompson added: “The result of this will give further information around central bank policy and the risk of recession, both of which remain key headwinds for crypto and other risk assets.”

The Fed is expected to raise rates by 25 basis-points on Wednesday, its smallest increase in nearly a year. Markets will likely be sensitive to any sentiments expressed by Fed Chair Jerome Powell regarding economic projections or guidance on future rate hikes.

Crypto markets have been moving in line with equities and other risk assets as the Fed continues its fight against inflation. Recent economic data points indicate that high inflation is easing, giving the central bank room to pull back on monetary tightening. 

Some crypto execs argue that price action before the central bank’s meeting is more speculative and not grounded in macro-level news. 

“Any movement ahead of the Fed meeting is mere correlation,” Jeremy Epstein, CMO of smart contract platform Radix, told Insider. “With the industry having withstood the Terra Luna, FTX, and Fed-induced macro and crypto winters, and with the speculators flushed out, it’s clear that crypto-and more specifically DeFi- is not only here to stay but has shown itself to be future-proof.”

It’s been a tough year for digital assets. Bitcoin and ethereum are down more than 66% from record highs in November of 2021. Markets broadly have been rocked by macro concerns, with crypto also dealing with the fall of industry titans like Three Arrows Capital and FTX over the course of 2022.