According to some experts, anticipated monetary tightening might exacerbate a worldwide selloff in important asset classes including stocks and cryptocurrencies.
As the dollar strengthened, the global equities and currency markets fell, ending a nearly week-long run above resistance levels.
Both Cardano’s ADA and Ether (ETH) have lost about 9% of their value in the last day, giving up a week’s worth of gains to become the leading cryptocurrencies with the largest losses. The Bellatrix update, the last “hard fork” of the Ethereum network before the Merge, was activated on Tuesday, although Ether’s decline still occurred.
Early European morning, Bitcoin (BTC) was trading under $18,900, down 5.5%. BNB and Solana’s SOL both declined by 5%, while XRP fell by 4% and Polkadot’s DOT fell by 7%. Liquidations on futures tracking popular tokens totaled $327 million, and the overall market value of cryptocurrencies fell below $1 trillion for the first time since July.
Dogecoin (DOGE) and Shiba Inu (SHIB) meme currencies had losses of 6% on average. Outside of the majors, Terra’s old luna classic (LUNC) coins saw a 20% decline after more than tripling over the previous week, while Ethereum Classic’s ETC lost almost 16% after a double-digit surge on Tuesday.
The dollar rose overnight, reaching a 24-year high versus the Japanese yen and establishing a lifetime high against the Indian rupee, which raised worries about the aggressive monetary tightening by the U.S. Federal Reserve. As tech stocks fell on Tuesday, the S&P 500 fell 0.4% and the Nasdaq 100 fell 0.7%.
After the U.S. Consumer Price Index (CPI) figures for August are issued on September 13, researchers at Arcane Research warned of heightened volatility in the following days in a note published on Wednesday. On Thursday, the European Central Bank will also decide on interest rates. Rate increases of 75 basis points are anticipated from the ECB. One-tenth of a percentage point is called a basis point.
The analysts added that traders were still positive on ether before the Merge event on the Ethereum network, adding that “these macro factors, together with the Merge, may be catalysts for continuing further.”
As for bitcoin, Chris Esparza, the creator of the decentralized finance (DeFi) protocol Vault Finance, said that the Fed’s anticipated tightening posed a “poor prognosis.”
According to Esparza, “tightening often limits the production of money to support the economy, as we experienced in the COVID-19 epidemic years.” He told CoinDesk that rather than depending on macroeconomic market indicators, bitcoin investors should concentrate on the asset’s fundamentals.
