FOMC Maintains Rates: Market Impact on Traditional and Crypto Sectors

On June 12, the Federal Reserve decided to keep interest rates unchanged between 5.25% and 5.5% during its fourth policy meeting of the year. This decision aimed to maintain economic stability, impacting both traditional financial markets and cryptocurrencies.

The announcement caused widespread reactions across global markets, as investors closely followed the Fed’s economic policies and interest rate decisions. In the crypto sector, this news led to increased volatility, resulting in around $400 million in liquidations and rapid selling.

Fed’s Decision Sparks Crypto Market Turbulence

Following the Federal Open Market Committee (FOMC) meeting on June 12, where interest rates were maintained between 5.25% and 5.5%, the crypto market reacted sharply. Bitcoin, which had been trading around $70,000, dropped to $66,000, while Ethereum also saw a significant downturn. This unexpected decision by the FOMC, contrary to previous hints of rate cuts, intensified market volatility. The result was nearly $400 million in liquidations, shaking investor confidence across various asset classes.

Federal Reserve Chair Jerome Powell highlighted that although there has been significant progress in addressing inflation concerns, the central bank remains cautious about easing its monetary policy. Powell’s cautious approach underscores the Fed’s commitment to maintaining stable inflation at around 2%, suggesting that premature rate cuts could jeopardize the progress made thus far.

Ether down in the last 24 hours. Source: Coingecko

Crypto Markets React to FOMC Decision and Powell’s Remarks

Following the Federal Open Market Committee (FOMC) meeting and subsequent remarks from Federal Reserve Chair Jerome Powell, the crypto markets experienced immediate and significant turbulence. Bitcoin, which had reached $70,500 earlier, dropped sharply to $67,220 after the FOMC’s decision to maintain interest rates.

Ethereum followed a similar downward trend, falling from over $3,700 to $3,400. The impact extended beyond these major cryptocurrencies, affecting altcoins like Cardano, Solana, and Ripple, each of which saw declines of at least 8%.

BTCUSD trading at $67,411 on the 24-hour chart: TradingView.com

In response to these market fluctuations, nearly $400 million worth of crypto assets were liquidated over the following days, reflecting heightened volatility and investor nervousness. Adding to the market stress, US spot Bitcoin ETFs recorded net outflows of $200 million, ending a 19-day streak of net inflows.

Despite a brief positive reaction to the US Consumer Price Index (CPI) report, which showed a slightly lower-than-expected inflation rate of 3.3% for May, the crypto market quickly reverted to its initial levels. This highlights ongoing investor uncertainty amidst economic unpredictability.

Bitcoin plummets in the last week. Source: Coingecko

Global Economic Policies and Cryptocurrency Interest

While the United States maintains a cautious approach towards rate cuts, other economic regions are taking different measures. Both the European Union and Canada, facing their own inflation challenges, have chosen to implement rate reductions in 2024. These divergent strategies reflect the distinct economic conditions and policy priorities across various regions.

Meanwhile, within the US, a survey commissioned by Grayscale reveals that 41% of respondents are closely monitoring Bitcoin amidst the country’s persistent inflationary pressures. This heightened attention to cryptocurrencies underscores a growing public interest in alternative investment avenues amid a climate of elevated inflation.

Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.

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