The upcoming announcement by the Fed on possible interest rate hikes and asset tapering is giving the financial markets the jitters. The Fed is hiking interest rates to clean up its balance sheet and control inflation. The first rate hikes are expected in Mar 2022.
The Fed has found itself in this sticky position with inflation after several decades. This is wholly explained by the two years of the pandemic when it had to intervene to moderate the financial impact of the pandemic.
Analysts tracking the market noticed a steep fall for BTC/USD. The stock markets have also experienced an adverse impact from the Fed announcement. The stock market and crypto are closely interconnected. Anything that affects stocks also affects crypto. And hence the strong bearish sentiment in both the stock and crypto markets.
The Fed’s balance sheet currently stands at $9 trillion. Following the Fed’s announcement, any reduction in this level of $9 trillion could deeply affect the stock market. About 70-80% of the sell off in the stock market is attributable to Fed’s announcement. The effect of trimming the balance sheet would have a greater impact than a raising of interest rates. This has been the trend historically. Movements in the balance sheet cause about a third of the changes in the market’s multiple.
Crypto traders are exercising caution. They are waiting with optimism that the trends will reverse soon.
Over the past day there has been some buy action witnessed on Binance. The bids for BTC are moving up, albeit slowly. These are encouraging signals. The opening support for BTC stood at $43,000. Data, however, also shows that sell orders at $45,000 were reducing.