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Crypto Market's Reaction to FOMC's Decision
On June 14, the Federal Open Market Committee (FOMC) announced that the Federal Reserve would put a hold on rate hikes for June. Despite this decision aligning with investor expectations, the crypto market has yet to display any strong upward trend. Chairman Jerome Powell indicated that at least two more rate hikes are projected in the future.
Bitcoin started the day on a positive note, trading above $26,000. However, the price dipped to a 24-hour low of $25,791 following the FOMC's announcement. Market analysts anticipate an imminent drop to $25,000 based on the current state of BTC derivatives data.
Impact of SEC Charges on Crypto Market
The subdued crypto market reactions and the lack of bullish response might stem from the recent SEC charges against Binance and Coinbase. These ongoing developments could potentially be influencing the market's muted response to the pause in rate hikes.
FOMC Decision's Influence on Stock Market
The announcement from FOMC prompted a sharp drop in the stock market on June 14, with the Dow Jones shedding 200 points shortly after the announcement. The S&P 500 Index, however, achieved a new 13-month peak.
Even though Powell decided to put a pause on interest rate hikes, the Fed maintained its commitment to addressing heightened inflation.
Future Implications of Monetary Policy
The Federal Reserve's policy issuance hinted at possible rate hikes in the future. Despite this, cryptocurrency prices remain closely tied with the Dow and S&P 500. While most major banks predict a severe recession in the U.S. in 2023, this hasn't stopped major stock indexes from hitting yearly highs following the U.S. debt ceiling deal.
Investor Sentiment and Economic Outlook
According to an analysis by U.S. Bank that encompasses over 1,000 data points, investor sentiment remains low regarding the current economic condition. Robert Haworth, senior investment strategy director at U.S. Bank, commented, "Overall, the U.S. economy is slowing, but not reaching recession." The pause in rate hikes has led to volatility in both equities and cryptocurrencies.
Regulatory Threat to the Crypto Sector
Regulatory measures continue to dominate the cryptocurrency news cycle. While the European Union revealed a digital asset framework known as the Markets in Crypto-Assets law, the U.S. seems set on regulation via SEC enforcement.
SEC Enforcement Actions and Crypto Tokens
The SEC has filed lawsuits that expanded the number of cryptocurrencies it deems as securities to 61, which represents $100 billion in value. Among these crypto tokens is Algorand, which SEC Chair Gary Gensler previously lauded as a "great technology" in 2019. This recent enforcement action seems contradictory.
DeFi Metrics and Crypto Volatility
Bitcoin exchange inflows and outflows have surged in response to the attack on centralized exchanges (CEXs). Despite the net flow movement to on-chain self-custody, decentralized finance (DeFi) hasn't seen any growth.
The total value locked (TVL) — a key metric to gauge the health and sentiment of the crypto market — has seen a decrease. DefiLlama reports that TVL across all protocols fell by 0.5% in the past 24 hours and has declined by $120 billion since April 5, 2022.
Given the macroeconomic headwinds, forthcoming rate hikes, and low volume, it seems likely that the crypto market will continue to experience volatility.
