What happened
Cryptocurrencies took a hit this morning as investors brace themselves for the Federal Reserve's upcoming meeting this week, which is expected to end with yet another big rate hike.
As of 10:41 a.m. ET Monday, the price of the world's largest cryptocurrency, Bitcoin (BTC -4.15%), traded roughly 3.3% lower over the last 24 hours. At one point earlier this morning, the price of Bitcoin had fallen to a three-month low below $19,000 per token.
The price of meme tokens Dogecoin (DOGE -6.30%) and Shiba Inu (SHIB -2.81%) traded 4.5% and 5.4% lower, respectively.
So what
The Fed will begin its September meeting tomorrow and then likely raise its benchmark overnight lending rate, the federal funds rate, on Wednesday followed by public comments from Fed Chairman Jerome Powell.
Image source: Getty Images.
After new inflation data came in hotter than expected last week, sending markets tumbling, it became all but obvious the Fed would do at least a 0.75% rate hike at this September meeting, which would be its third such move in a row. But there is also a chance the Fed surprises the market and hikes rates by a full percentage point. Currently, the CME's FedWatch tool has the likelihood of a full-point hike at 20%.
The U.S. economy is already in a technical recession after U.S. gross domestic product (GDP) contracted in both the first and second quarters of the year, but many are concerned that these aggressive rate hikes from the Fed could tip the economy into a much more severe recession.
Continued rate hikes do not bode well for cryptocurrencies, which have already been hammered this year. As rates rise, safer assets start to yield more, which makes riskier assets like tech stocks less appealing.
Cryptocurrencies have moved a lot like highly valued tech stocks this year but are arguably even riskier because they are more difficult to value. While one can say that a tech stock looks appealing at a certain valuation, it's a lot harder to make this case for the likes of Bitcoin because there is nothing really backing digital assets. Investors in cryptocurrencies also don't receive any kind of capital distributions like dividends or stock repurchases.
Now what
It's certainly tough to know what the Fed will do on Wednesday after recent inflation data came in higher than what economists had expected.
I'm hopeful the Fed will take a longer-term view and consider that recent rate hikes dating back to June have still not likely worked their full way into the economy, as it can take six months or more to do so, which is why I feel like another 0.75% hike right now is plenty.
I'm still bullish on Bitcoin on a long-term basis as I see growing adoption playing out, despite the ongoing crypto winter. I'm not interested in many altcoins right now like Dogecoin and Shiba Inu.
