Bitcoin and Ethereum Lead in Losses Ahead of Tomorrow's Fed Meeting
The Federal Reserve is rumored to increase interest rates by 0.75% today, the highest its been in almost three decades. This has led to a steep decline in both Bitcoin and Ethereum prices, as well as other small players within the market.
At this current time, Bitcoin has dropped to $21,808 down almost 2% in 24 hours, with Ethereum losing close to 6% as it sits at $1,517. Other big players such as Cardano, have lost close to 7%, with Dogecoin following behind at 6%, and XRP coupled with Solana has a tied 4% loss.
As a result of these falls, the entire market capitalization of all cryptocurrencies has sunk from $1.08 trillion last Wednesday to $1 trillion, at the time of this writing.
All these decreases come ahead of the latest Federal Reserve meeting which begins tomorrow and is expected to finish with an increase in interest rates by 75 basis points, issued by the U.S. central bank.
The Fed had already given a 75 basis point hike back in June, which was also the largest increase in nearly three decades. Officials had also given short-term borrowing rates a bump to 1.5% this year.
Interest rates are the rates that banks charge each other for loans, this is the Fed's biggest tool in counteracting inflation. This tool is now being upped to a rate of 2.25% to 2.50%, leading many to come to the conclusion that the cushioning of the economy left over from the pandemic is finally coming to an end.
As the federal funds rate goes up, so do credit cards,adjustable-rate mortgages, student debt, savings deposits, home equity lines of credit, and any other type of loan to become more expensive.
The theory behind these moves is that more expensive borrowing leads to less consumer spending, leading to inflation going down.
Though the theory may not always play out, as inflation has only gone up since the Fed began raising rates in March, with the price of food, rent, and gas all becoming noticeably ridiculous behind a four-decade-high 9.1% inflation rate.