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Market Volatility Ahead of Federal Reserve Meeting
As investors brace themselves for the upcoming Federal Reserve meeting, the cryptocurrency market, particularly Bitcoin and Ethereum, is experiencing a significant downturn. At the time of writing, Bitcoin has plummeted by 7.6%, trading around $57,000, while Ethereum has seen a 6% drop, hovering just under $2,900, based on data from CoinGecko.
Derivatives Trading Turmoil
The market volatility has wreaked havoc on derivatives traders, resulting in $457 million worth of crypto futures positions being liquidated within the past 24 hours, with $392 million of those being long contracts. Futures traders are essentially speculating on future price movements, either betting for (long) or against (short) an asset’s price trajectory.
It’s not just Bitcoin and Ethereum feeling the brunt of the sell-off; most of the top 100 cryptocurrencies by market capitalization on CoinGecko are painted red, except for stablecoins like Tether (USDT) and USDC, which have managed to hold their pegs amid the turmoil.
Fed Interest Rate Decision Impact
All eyes are on the U.S. Federal Reserve’s interest rate decision, scheduled to be announced at 2 p.m. Eastern Time today, followed by a press conference by Fed Chair Jerome Powell at 2:30 p.m. In February, many investors anticipated a rate cut by the FOMC in May, typically viewed as a bullish signal for risk assets including Bitcoin.
Lowered interest rates typically lure traders away from safe-haven assets like U.S. Treasuries towards riskier investments like equities and cryptocurrencies. The Fed’s current key interest rate range of 5.25% to 5.5% has remained unchanged since July 2023, aimed at combatting inflation, which currently stands at 3.5%.
Last month, inflation surged to its highest level since September, prompting concerns among policymakers. While there was a glimmer of hope in March when the Swiss Central Bank cut interest rates citing a return to price stability, similar actions from other major central banks seem unlikely.
Despite earlier expectations of a potential rate cut in June, sentiment has shifted, with traders now eyeing December as a possible timeline for Fed easing, albeit with only a 75% majority consensus. The uncertainty surrounding interest rate decisions continues to drive market volatility and investor apprehension.
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