Crypto market flashes red ahead of Fed/Wall Street clash
- FOMC reportedly fears that the rising stocks market might undermine its targets.
- The hawkish posture unsettled markets briefly on Monday.
The crypto market flashed red on 30 January, just a day before the Federal Open Market Committee (FOMC) meeting on 31 January and 1 February, 2023. A report by Bloomberg alleged that the market reaction was due to FOMC’s hawkish posture.
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The report reiterated that FOMC feared price pressures from stock markets could undermine its target. Fed watchers believed that eased inflation could tip the central bank to stop raising rates and cut them later this year. However, FOMC feared price pressures from such action could undermine its fight against inflation.
Crypto markets – Collateral damage or profits?
Wall Street interpreted FOMC sentiment as hawkish, and the market picked the reflections immediately. On Monday, the S&P 500 Index (SPX) fell by 1.30% and closed at $4017 compared to its opening of $4049.
Similarly, the short-term bearish sentiment on the traditional market spilled into the crypto sector. Bitcoin [BTC] broke below the $23.5K level, setting most of the altcoin market into a temporary correction.
At press time, BTC’s value was $22 949, down 3% in the past 24 hours, as per CoinMarketCap data. Ethereum [ETH], the king of altcoin, was also down by 3% and traded at $1,577, as the crypto market reeled from the hawkish stance of FOMC before the official meeting and announcement.
Should crypto traders and investors be worried?
The above correlation between Bitcoin and the traditional stock markets thus underlies the risk exposure that crypto investors and traders must deal with.
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Previously, the stock market rally in early January set BTC and the rest of the crypto market to surge massively. Most coins and tokens reclaimed their pre-FTX levels, allowing investors to recover the associated losses.
But the hope for further rally and gains into February now depends on how traditional markets react to the official FOMC announcement. The bearish sentiment picked before the official announcement should signal investors to be cautious and avoid hasty moves.