What happened

Along with stocks, several cryptocurrencies fell out of the gate today as investors continue to weigh the macro outlook and look ahead to a critical Federal Reserve meeting later this week.

The price of the world's largest cryptocurrency, Bitcoin (BTC 0.09%), is only slightly down over the last 24 hours but is down nearly 13% over the last week and trades at about $21,300 as of this writing.

Over the last 24 hours, the world's second-largest cryptocurrency, Ethereum (ETH 0.51%), had traded 3% lower at 10:46 a.m. ET today. The price of Solana (SOL -0.56%) traded 4.3% lower, and the price of the meme token Dogecoin (DOGE 1.41%) was down 3.7%.

So what

After rallying in July and part of August, stocks and cryptocurrencies have taken a breather, as investors are still in the dark when it comes to where the economy could be headed over the next six to 12 months and how aggressively the Fed will raise interest rates.

Red line with arrow moving downward.

Image source: Getty Images.

After new data showed inflation may have peaked in July, the market seemed to think that the Fed might be able to start to slow the pace of rate hikes. That sparked a rally in tech stocks and many cryptocurrencies, which have traded a lot like tech stocks this year.

But now the market thinks it may have gotten ahead of itself and the Fed could still be aggressive. The market is penciling in another 50-basis-point (0.50%) hike for the Fed's next meeting in September, but a 75-basis-point hike is not out of the question. The market will be looking for more clues on Friday when Fed chairman Jerome Powell speaks at the Fed's annual Jackson Hole economic symposium.

Last Friday, the crypto market declined suddenly for no obvious reason, although some analysts now believe the sell-off was caused by the bankruptcy of the Celsius Network, which may have led the network to sell thousands of Bitcoin tokens into the market last week. Most cryptocurrencies and crypto stocks trade with a heavy correlation to Bitcoin. This upcoming Friday, however, could be a chance for the Fed to reset the market's expectations.

"Bitcoin's outlook for the week is quite unclear and the price will likely fluctuate within a narrow range until Powell's speech," Yuya Hasegawa of Bitbank said in a recent research note. "The $20,000 psychological level could be a reliable support for the price and $22,000 will likely be a resistance until then."

Now what

It's been a tough year for the crypto market, and there is still a lot of uncertainty when it comes to the macro outlook, with traders still wondering where inflation and rates are heading, as well as what will happen with the labor market.

The Fed is also in the process of pulling liquidity out of the economy in a process known as quantitative tightening. That process is beginning to ramp up and could lead to fewer funds flowing into risky assets.

With the uncertainty, expect near-term volatility in the crypto market. I like Ethereum for the long term and think the upcoming completion of the network upgrades will be a catalyst. Solana looks interesting as well, given its technical capabilities. I'm not a fan of the meme token Dogecoin, which doesn't seem to have any unique capabilities or use cases.