Why Bitcoin, Ethereum, and Polkadot Are Falling Today

Investors were anxiously awaiting the release of the Federal Reserve’s meeting minutes today.

What happened

Many cryptocurrencies fell today ahead of the release of the Federal Reserve’s meeting minutes from its most recent meeting, which concluded on Feb. 1. However, once the minutes were released nothing seemed to move the market too dramatically. Since late afternoon yesterday, the price of the world’s largest cryptocurrency, Bitcoin (BTC 1.04%), traded about 3% lower as of 2:46 p.m. ET today. Meanwhile, the price of the world’s second-largest cryptocurrency, Ethereum (ETH 1.14%), traded 3.3% lower, while the price of the Chinese altcoin Polkadot (DOT 1.81%) was down 3.4%.

So what

After a nice run-up for the stock market and cryptocurrencies to start the year, investors have started to get more doubtful. The good news is that the labor market has remained strong, while price growth has shown signs of slowing. But this is also in a way bad news because a strong labor market may force the Fed to keep hiking interest rates and the market is looking for an end to the Fed’s rate-hiking campaign. Then again, investors are still worried about a more severe recession materializing. Essentially, the margin for error seems very slim. Crypto investors are especially looking for the Fed to end its rate-hiking campaign because soaring interest rates make riskier assets less appealing and crushed crypto prices in 2022. In the Fed’s minutes today, there didn’t seem to be any huge surprises, but it’s clear the Fed does not believe it has won its war with inflation yet. The Fed at its last meeting raised its benchmark overnight lending rate by a quarter point, in line with expectations. But the Fed’s meeting minutes showed that a “few” Fed members wanted to do a half-point hike. Other members of the Fed reportedly viewed the chance of a recession as “elevated.” “Participants noted that inflation data received over the past three months showed a welcome reduction in the monthly pace of price increases but stressed that substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path,” the Fed’s meeting minutes stated. The other big thing in crypto that investors continue to monitor is the regulatory landscape. The Securities and Exchange Commission (SEC) has started to crack down on certain staking and stablecoin projects. Meanwhile, media reports have surfaced that the Chinese government may be quietly supporting Hong Kong’s push into crypto. That’s why cryptocurrencies like Polkadot have had a strong week.

Now what

Cryptocurrencies today seem to really be trading on macro news related to the Fed’s meeting minutes, which indicated that the Fed has not yet seen strong enough data to stop raising rates. While this may not have been a surprise, it’s still not exactly what investors may have been looking to hear. Ultimately, I continue to like the larger, more mainstream cryptocurrencies like Bitcoin and Ethereum that are increasingly being adopted and have real-world utility. I do think those are here to stay and will be able to ride out the rest of the crypto winter and turn into good long-term buys.