Cryptocurrencies have lost $700 billion after the US Federal Reserve’s decision which indicates the Fed is close to raising interest rates.
Bitcoin’s losses increased over the weekend, reaching levels below $42,000, after dropping more than 11% over the last seven days.
For the first time since the end of last September, Bitcoin approached the level of $40,000 , which raised its losses since its peak only three months ago to about 42%.
Meanwhile, the cryptocurrency market capitalization has lost about $700 billion in the last seven days.
Ether has fallen by more than 17.4%, and major cryptocurrencies are not spared the declines.
The volatility comes amid signs that the Fed is preparing to combat persistent inflation by withdrawing stimulus. The minutes of the Fed’s December meeting, which were published last Wednesday, pointed to the opportunity to raise interest rates earlier and faster than expected.
Economists expect liquidity levels to be affected, weakening the luster of risky, high-growth assets.
If Ether breaks out above the mid-November highs, and Bitcoin continues to sit drag, it will become apparent Ether “has become the new crypto of choice for most investors,” Matt Maley told Bloomberg.
Malley is the chief market strategist for Miller Tabak + Co, an institutional firm since 1982.
Bloomberg Intelligence analyst Mike McGlone believes that $40,000 is an important technical support level for Bitcoin, and digital currencies are a good indicator of the current decline in risk appetite.
But he expects bitcoin to eventually be at the fore as the world becomes increasingly digital and digital currencies become the standard security.
This comes at a time when the pandemic has helped Bitcoin to spread further, as institutional and individual investors have become involved in the cryptocurrency market and its related projects.
Since the beginning of the year, the Bloomberg Crypto Galaxy Index of cryptocurrencies has lost nearly 10%.
The US Federal Reserve intends to raise US interest rates faster than expected, with inflation rates rising to record levels.