Bitcoin and Ethereum Plunge Amid Economic Uncertainty and Rate Hikes

A broad selloff in the cryptocurrency market accelerated Monday, driving Bitcoin (BTC) to levels not seen since February and Ethereum (ETH) to prices last seen in December. 

This sharp downturn is largely attributed to rising global economic concerns and unexpected shifts in monetary policy by major central banks.

Bitcoin dropped 12% over the past 24 hours and 20% on a week-over-week basis, according to TradingView data. Ether fared even worse, plunging 20% in the past 24 hours and 30% over the past week, erasing its year-to-date gains and falling approximately 3% since January 1.

The immediate trigger for this massive correction in both crypto and traditional markets appears to have been the Bank of Japan’s decision to hike its benchmark interest rate last week. This unexpected monetary tightening sent the yen soaring and Japan’s Nikkei stock index tumbling. The Nikkei, down another 6% early Monday, has dropped roughly 15% over the past three sessions and 20% from its mid-July peak.

Overall Market Uncertainty 

The turmoil in Japan quickly spread to the U.S., where the Nasdaq slid more than 5% in the final two sessions of last week and started Monday down another 3%. 

Adding to the market’s anxiety was the U.S. Federal Reserve’s recent stance on interest rates. Although the Fed held rates steady, it appeared ambivalent about cutting rates in September, a move that nearly all market participants had assumed was certain. This cautious approach by the Fed has raised concerns about a potential policy error, as traders have priced in a 100% chance of lower U.S. base rates in September. There is a 71% probability of a 50 basis point cut and a 29% chance of a 25 basis point cut.

As markets react to these developments, the U.S. 10-year Treasury yield has tumbled to 3.75% on Sunday evening from 4.25% just a week ago, significantly lower than the current federal funds target of 5.25%-5.50%.

In the midst of this economic upheaval, BTC fell to as low as $49,112, while ETH sank to $2,060. 

Market Impact

Investor sentiment has soured significantly, as evidenced by substantial withdrawals from U.S. spot Bitcoin exchange-traded funds (ETFs).

This panic selling also led to over $1 billion in liquidations in the crypto futures market, with ETH alone accounting for $350 million.

The broader financial market’s downturn, coupled with geopolitical tensions in the Middle East, has further fueled investor fear. J

As Bitcoin and Ether attempt to stabilize, market participants will closely monitor economic indicators and geopolitical developments to gauge the market’s next move. The coming weeks will be crucial in determining the trajectory of these digital assets and their role in the broader financial ecosystem.

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