Fed's hawkish turn hits cryptos; Bitcoin drops below $25,000

There´s been a vast bearish turnaround in cryptocurrencies. Bitcoin (BTC) falls 4% in the last 24 hours and drops below $25,000, while Ethereum (ETH) retreats 6% and tries to hold $1,600.

The drop in the markets came after the latest monetary policy decision by the Federal Reserve (Fed). The US central bank met forecasts and paused its cycle of interest rate hikes after 10 consecutive hikes... but also anticipated more hikes. The Fed has revised its interest rate forecast and raised this year's forecast to 5.6%, up from the 5.1% it estimated in March. In this sense, two more hikes of 25 basis points are anticipated until the end of the year. It has also raised the estimates for 2024, from 4.3% to 4.6%, and for 2025, from 3.1% to 3.4%.

Jerome Powell's comments have also pointed in this direction. The Fed chairman explained that "almost everyone" at the central bank has agreed that "some further hike would be appropriate this year," even if it is "reasonable" to go a bit slower. "It will be fitting to cut rates at a time when inflation is coming down significantly. And again, we are talking about a couple of years. As anyone can see, not a single person on the Committee wrote a rate cut this year, nor do I think it's appropriate," Powell stressed.

Experts stated that the comments from the central bank and its chairman leave a more hawkish scenario than they initially laid out and many are already forgetting that there is even a slight chance of seeing a rate cut this year. Others pointed out that the Fed will not achieve its goal of bringing inflation to 2% without triggering a recession.

Meanwhile, regulatory developments by the Securities and Exchange Commission (SEC) over cryptocurrencies Binance and Coinbase continue to weigh on market sentiment. The SEC recently weighed in on a deal to avoid freezing all assets of Binance's U.S. subsidiary, in addition to asking for up to four months to respond to a request from Coinbase to craft new cryptocurrency regulations.

"We have to remember that the crypto market is a relatively small market, and a few hundred million dollars can move the market for a few percent. So let's see the following days if it is really a downward trend or just a single whale sell off," commented Ruslan Lienkha, director of markets at crypto service provider YouHodler.

Experts from TickMill Group, on the other hand, indicated that while some risk-offs were painting an encouraging picture before the Fed meeting, cryptoassets were still too stagnant. "The issue for crypto currently is the latest wave of negative news to hit the sector," they stated, while pointing out that uncertainty has once again grown in the digital asset space.

"The correction lower in BTC has seen price trading within a corrective bear channel. Recent attempts to break back above the 27415 level have failed so far. However, while 24930 holds as support, the structure can still be viewed as a bull flag, keeping the focus on an eventual break higher towards the 32185 level," they added.

For his part, Markus Levin, co-founder of XYO Network, is more optimistic and he believes that "the global macro setup is shifting significantly" in the crypto market, which would have likely already hit the bottom. "“I expect there to be sideways action for BTC and other coins for some months ahead, punctuated by bouts of volatility. When the BTC halving kicks in next year, however, then I think we’re off to the races," he added.

In other market news, there have been notable declines in the altcoins space. Ripple (XRP), Cardano (ADA) or Polygon (MATIC) drop between 5% and 6%. Binance coin (BNB), on the other hand, falls sharply after numerous analysts accused Zhao and Binance of trying to manipulate its price.