What happened
The cryptocurrency market continues to trade closely with the stock market, and that has continued over the weekend. On Friday, Federal Reserve Chair Jerome Powell said that restrictive interest rate policies will continue until inflation is under control. That means interest rates will remain high and investors are selling risky assets as a result.
As of 1:30 p.m. ET, Ethereum (ETH -1.05%) had fallen 7.1% in the last 24 hours, Bitcoin (BTC -1.32%) was down 3.5%, and Solana (SOL -1.57%) had fallen 5.7%. Most of the drop occurred on Friday or early Saturday, and the market had settled down by midday Saturday.
So what
Powell is at the Economic Symposium in Jackson Hole, Wyoming, an annual conference that is closely followed by investors. He wouldn’t say if rates would rise 50 basis points or 75 basis points, but it was clear the focus is on getting inflation under control over keeping the economy growing.
Higher interest rates tend to slow down the economy because companies aren’t able to raise capital at rates that are as attractive as when rates are low. This can have the effect of forcing investors into assets that pay higher rates, like dividend stocks or bonds, and out of risky assets like cryptocurrencies.
The economic slowdown piece is what I would be concerned about at the moment. Jobs data has been strong for most of 2022 despite the increase in rates, but that won’t last forever. If companies slow hiring or even lay off employees it would leave people with less discretionary spending.
Crypto has benefited greatly from consumers having higher savings and money they’re willing to bet on very speculative assets. If that money dries up, the crypto market could still go lower.
Now what
The Federal Reserve’s moves don’t directly impact cryptocurrencies, but there can be second and third order effects. Many early crypto products are yield-generating, which means that they’ll be competing with higher interest…
![Anticipation for Ethereum [ETH] 2.0 rises as metric reaches all-time high](https://crypto.newswireservice.net/wp-content/uploads/2023/01/ethereum-wale-1000x600-350x250.jpg)
