Digital assets have increasingly become mainstream as adoption rises. Hence, the Federal Reserve monetary policy affects the traditional financial markets and the emerging Crypto market.
Caleb Franzen, a senior market analyst at Cubic Analytics, is thus confirming that the Federal Reserve indeed wields influence over the Crypto market. The Crypto enthusiast was speaking on the Best Business Show by Anthony Pompliano yesterday.
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The Inverse Relationship Between Treasury Yields and Digital Asset Prices
When the US released its inflation report for May, it was evident that the Federal Reserve was set to hike the interest rate. The decision is meant to rein in the inflation rate by mopping out excess liquidity in the market. The direct effect of high-interest rates is that it makes government bonds and treasury bills yield higher returns.
Since government-backed financial instruments are deemed more stable, it triggers a sell-off for digital assets and stocks as investors leverage the opportunity. This is why digital assets have been oversold in the short term. The trend has been prolonging the Crypto winter leading to a market capitalization dip to a level that is below $1 trillion on Coinmarketcap.
Recovery is Dependent on the Feds Easing Their Policies
Franzen notes that the only factor that could trigger a rally in the Crypto market is if the Federal Reserve eases its monetary policy. This will increase buy orders as investors flock to the market to invest in Bitcoin and other Altcoins. However, the Crypto analysts are not optimistic that the apex bank’s board will reverse its tough policy. This is because the current inflation rate is unprecedented, and the Powell-led board may be more conservative in its approach. It is important to note that the current inflation rate is at 8.6% compared to a level of 2% that has been synonymous with Americans for decades.
The Crypto Market Is However Showing Signs of Resilience
Despite BTC having shed off 7.11% in the last seven days, there are signs of recovery in the last 24 hours. The largest Crypto plummeted below the $20,00 support level over the weakened, but a market correction has since led to recovery to a current price of $21,000. This culminates in a 24-hour growth rate of 6.25%.
ETH is also trading at the short-term support level of $1,000, surging by 7.83% in the last 24 hours to trade at $1,154. The growth is also countering the weekly losses, which have eased to 6.46%.
With Bitcoin and Ethereum in the green, the Crypto market is showing signs of recovery. Consequently, the market capitalization is racing towards $1,000,000,000, closing the window for investors who have been waiting to buy the dip.