Ethereum’s native token, Ether (ETH), plummeted hours after the United States Federal Reserve released the minutes of its December meeting, showing that it foresees a faster schedule to raise interest rates in 2022.
The minutes showed that the Federal Open Market Committee (FOMC) is in favor of raising rates in the short term “earlier or at a faster rate than participants had anticipated.” According to CME Group, trading on the interest rate futures market showed a two-thirds chance of the first increase in March.
Ether was down after the minutes were released, dropping more than 13.50% to a low of $ 3,300. Its decline reflected similar downturns in the crypto market, with Bitcoin (BTC) shedding just over 9% to nearly $ 42,100.
Incontestably, ETH / USD returned more losses to its investors than BTC / USD after the Fed announcement.
It seems that the traders decided to undo the tokens with better long-term profits than Bitcoin. For example, Ether’s returns over the past 12 months, even after the Fed-led slide, were around 175%. On the other hand, Bitcoin’s gains were almost 15.75% in the same period.
Similarly, Ether’s main rival, Solana (SOL), also posted more losses than Bitcoin, dropping more than 13.75% after the Fed news. However, its 12-month gains turned out to be more than 7,500. %, indicating additional extreme corrections if the cryptocurrency market bias remains skewed towards bears.
ETH / BTC hits a key bounce level
Ether also tumbled against Bitcoin, based on the performance of a widely traded ETH / BTC instrument over the past 24 hours.
The pair fell just over 5% to hit 0.077 BTC. In doing so, it also reached a critical support level near 0.078 BTC which has recently been instrumental in keeping Ether bullish against Bitcoin by limiting the former’s downside bias.
Meanwhile, the 0.078-BTC support also appeared to be the lower trend line of Ether’s descending triangle. Descending triangles are continuation patterns that typically send price in the direction of its previous trend after a period of consolidation.
That increases Ether’s potential to remain stronger than Bitcoin in the long term, provided it breaks above the upper trend line of the triangle with convincingly higher volumes.
Too early to fear the Fed
For months, Fed officials clung to the view that higher inflation in the US was inspired by supply chain bottlenecks, and President Jerome Powell claimed it would resolve itself. . But at the last meeting, he showed less conviction toward the so-called “inflation is transitory” narrative.
This is primarily due to the US consumer price index hitting a nearly 40-year high in November 2021, hitting 6.8% year-on-year. Meanwhile, core consumer prices, which exclude the energy and food categories, increased to 4.7% over the previous year; it was above the Fed’s preferred inflation target of 2%.
“I think there is now a real risk that inflation is more persistent and … the risk that higher inflation takes hold has increased,” Powell said on Dec. 15 after the FOMC meeting concluded.
Madison Faller, a global strategist at JPMorgan Private Bank, told Bloomberg that investors should not fear the Fed, noting that its three planned rate cuts for 2022 would do little to curb consumer prices. She said:
“Growth and inflation will decelerate throughout 2022, but will nonetheless remain above historical trend levels. We believe this will require much less risk of a Fed-induced material market correction. “
As Cointelegraph also covered, fears of persistently higher inflation, which, in turn, tends to devalue cash, have led major investors to park their money in the crypto sector.
For example, Thomas Peterffy, the billionaire founder of brokerage firm Interactive Brokers Group Inc., admitted that he owns between 2% and 3% of his net assets in cryptocurrencies in case fiat money “goes to hell.” . Likewise, Bridgewater Associates founder Ray Dalio revealed last year that his investment portfolio contains Bitcoin.
The anti-inflation outlook promised to offer a respite to Ether, which tends to track Bitcoin price movements.
Meanwhile, Sean Farrell and Will McEvoy, strategists at Fundstrat Global, noted that investors should increase their investments in the smart contracts sector to take full advantage of the upcoming market rally.
“Given the current macro context, the leverage within the Bitcoin market, and the recent robustness seen in the altcoin market, we believe it is appropriate to overweight Ethereum and other smart contract platforms,” they said in a note, adding:
“We would probably not bet the short-term farm on Bitcoin, but we believe there is an opportunity to maintain long-term volatility through derivatives strategies.”
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