FOMC’s September Meeting Triggers Volatility in the Bearish Crypto Market

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The recent FOMC meeting that ended on Wednesday ended Ether’s upward movement, as did the case of Bitcoin. The coins, however, are back to being volatile after that, but the decisions made in the latest FOMC meeting will have far-reaching long-term effects and investors wouldn’t worry much about the short-term disturbances the meeting is causing in the Crypto as well as in the securities market.

The importance of the FOMC in the cryptocurrency market could be explained by the fact that it has had a greater impact on the price of Ethereum than the launch of its long-awaited and promising network bridge which would solve energy consumption problems and also reduce the footprint of carbon network.

What is the FOMC and how does it affect the cryptocurrency market?

The FOMC is the Federal Open Market Committee which is the authority in open market operations. The Committee is made up of a total of 12 members, 7 of which are the board of directors, the chairman of the Federal Reserve Bank of New York, and the other four members are made up of the remaining 11 Reserve Bank Presidents on a rotating basis.

Committee members meet eight times a year to discuss developments in the country’s financial markets and monetary policy and focus on developing methods for the country’s long-term economic growth.

The Federal Reserve has three tools to control the money supply in the country: open market operations, discount rate, and reserve requirements. Open market operation is the process of buying and selling government bonds to control the money supply in the economy.

The recent FOMC meeting and its effect on Bitcoin and Ether

At the last FOMC meeting held this month, the interest rate was further increased by 75 points. The revised interest rate is now 3.25%, the highest the FOMC has set in recent years. In fact, the interest rate was near zero and has only seen an upward trend in the past two years (coinciding with the pandemic).

The increase in the interest rate makes the cost of obtaining funds (in the form of loans from banks) more expensive than before. This prevents people from getting more funds and helps decrease the money supply in the market. This increases the cost of borrowing.

A decrease in the interest rate has the opposite effect as it increases the money supply in the market and decreases the cost of money.

The cryptocurrency market reacts very promptly to the news of the FOMC meetings and this time the same thing has happened. Although, for a short time, Ethereum and Bitcoin have been in a race to the bottom. Bitcoin, which traded at $ 19,000, fell to $ 18,900 after news of the interest rate hike.

The FOMC is so relevant to the cryptocurrency market because its policies, directly and indirectly, influence the price trend in the market. An increase in the interest rate increases the cost of money and decreases the funds available to people to invest in cryptocurrency assets.

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Ether fell as low as $ 50 following FOMC news. From the trend seen in recent years, it can be concluded that FOMC policies have an immediate impact on the cryptocurrency market but do not affect its volatility in the short term. While, in the long run, the policies of the institution have a strong influence on the direction of the market. Some experts say cryptocurrency markets are the biggest contributors to both the rise and fall of the cryptocurrency market.

As for the current policy, raising the interest rate would either have a neutral effect on the market or create a long-term bearish race (like this year’s).

Inflation and the cryptocurrency market

The reason for the FOMC’s rising interest rate is the ever-increasing level of inflation in the country. Inflation levels in the United States have risen over the past two years (mainly due to financial instability during the pandemic).

The FOMC aims to bring inflation back to pre-pandemic levels (2%). To do the same, he raised the interest rate by 75 points to 2.5% in the last meeting and, as expected, this time he did the same.

The main concern of the FOMC is to control inflation in the country and it will have to decrease the money supply to do the same. This, however, would not be good news for the cryptocurrency market as it would once again have a bearish run which will negatively impact investors and new projects in the cryptocurrency market.

The growth of the cryptocurrency market, as can be deduced from the above information, is highly dependent on inflation. This is because the decrease in the value of USD would make the coin worth more than it was before, but the decrease in the money supply would decrease the value of cryptocurrencies such as Bitcoin.

Conclusion

As for speculation, the situation will not change anytime soon as inflation will be buoyed by the Ukraine-Russia war and global fuel prices. This means that interest rates will increase further in the coming months and could exceed the 4% threshold.

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