In the previous seven days, BTC prices have decreased by 5%. The prices of Ethereum did not increase after the merger was successful. ETH is now worth less than $1,500.
In the past day, the market valuation of cryptocurrencies has decreased by almost 3%, and it is now significantly lower than the $1 trillion threshold. The Fed's aggressive strategy to fight inflation is the root cause of the current bear market in cryptocurrencies. An economist study indicates that interest rates will continue to surge until into 2023.
How the Crypto Bear Market Is Being Caused by Interest Rates
In 2020, the cryptocurrency market's correlation with the overall market grew. It acts very much like tech stocks and the NASDAQ's tech-focused market. Thus, the macroeconomic environment has a significant impact on the cryptocurrency market. The Fed increased the interest rate by an unusual 75 basis points in June 2022. The crypto market consequently had a severe liquidity crisis.
By the end of this year, the Fed will increase interest rates by 400 basis points, or almost 4%. 225-250 bps is the current target rate range. The Fed will need to make two consecutive big raises of 75 bps in order to achieve 400 bps. The market has also factored in the potential for a 100 bps increase.
The survey is in accord with the main Fed officials' views in a big way. The necessity to boost interest rates over 4% was emphasized by Cleveland Fed President Loretta Mester. Economists predict that the Fed won't change course until 2024. The fact that the Consumer Price Index for August reveals worse-than-expected inflation will not support the Fed's proactive attitude.
How Likely Is Elon Musk's Deflation Prediction?
Elon Musk thinks that if the Fed makes another substantial rate hike, the economy will be tipped toward deflation. It is crucial to determine whether an almost inevitable interest rate hike can lead to deflation-type conditions given that the CPI figures from August have strengthened the Fed's position.
