The Crypto Market Fell Despite Rate Hike Pause, Why?

Paigambar Mohan Raj
Source: Seeking Alpha

Despite the Federal Reserve announcing a rate hike pause, the crypto markets saw a surge in volatility. Although the rate hike pause met investors’ expectations, the bullish momentum in the crypto market has not yet materialized. Jerome Powell, the chair of the FED, said that at least two rate increases would be required in the future. While Powell chose to halt interest rate increases, the Fed reaffirmed its commitment to bringing down high inflation.

The crypto market experienced a sharp slump yesterday, with major currencies falling to levels last seen in March 2023. Bitcoin fell below $25,000 for the first time in three months. The global crypto market cap, on the other hand, has fallen 3.6% in the last 24 hours, currently sitting at $1.06 trillion.

The growing difference between realized and implied volatility is one noteworthy observation. Despite the market instability, implied volatility levels have not increased in step with the increased price fluctuations. The realized volatility reflects what actually occurred in the past, as opposed to the implied volatility, which describes how the market anticipates future volatility.

Why did the crypto market fall despite a rate hike pause?

It’s possible that the Securities and Exchange Commission’s (SEC) allegations against Binance and Coinbase are why there hasn’t been a bullish reaction to the rate hike pause.

Furthermore, the stock market also saw some volatility following the FOMC decision on June 14. The Dow Jones lost 200 points in just a few minutes after the announcement. Meanwhile, the S&P 500 Index, another significant market index, reached a 13-month high. Additionally, crypto prices continue to have a strong correlation with the Dow and S&P 500. TVL across all protocols, according to DefiLlama, fell 0.5%, in the last 24 hours.

Most major banks continue to predict that the United States will have a severe recession at some point in 2023. A recent study that takes into account more than 1,000 data points revealed that investor confidence in the economy’s current position is still low.

Although the economy plays a central role in investor sentiment, crypto investors are currently most worried about the regulatory scrutiny in the U.S. The recent SEC lawsuits are the latest in a long line of disagreements, misunderstandings, and mistrust regarding the true use case of digital assets.