Crypto market drops 6% after Fed announces $1.1T yearly quantitative tightening

YEREVAN (CoinChapter.com) – The combined valuation of all the crypto assets dropped by over 6% to $1.93 trillion Wednesday after the minutes of the Federal Reserve’s March meeting revealed their plans to shrink their balance sheet.

Also read: Good news! Bitcoin, S&P 500 correlation falls amid recession risks.

Notably, in February, the U.S. central bank officials agreed to remove more than $1 trillion annually to tame inflation, which reached 7.9% — its hottest level in four decades. Additionally, the meeting showed the officials’ consensus on raising benchmark interest rates by 50 basis points.

Fed meeting minutes

As CoinChapter previously covered, the March meeting resulted in a quarter-point interest rate hike.

However, several Fed representatives, who attended the Federal Open Market Committee(FOMC) meeting, viewed one or more half-point increases as appropriate going forward if “price pressures fail to moderate.” 

Also read: Bitcoin rallies over $41K after Fed raises interest rates — but a BTC sell-off appears likely.

Thus, some analysts saw the decision to slash the balance sheet as frantic aggressively. For example, Stephen Stanley, the chief economist at Amherst Pierpont Securities LLC, commented on the minutes, calling out Fed’s actions as overdue.

The FOMC stayed far too easy for far too long and has belatedly realized their mistake. They are now scrambling to get policy back to neutral as quickly as they can.  

Once they arrive at something close to neutral, they will have to ascertain over time how far into restrictive territory they have to move to get inflation back under control.

said the expert.

Hawkish policy effect on crypto

The U.S. dollar and crypto charts, particularly Bitcoin, have displayed an erratic inverse correlation during the Covid-19 Pandemic. As a hedge against inflation, Bitcoin had risen against the dropping dollar stability before and vice versa. However, the inpour of institutional investor funds contributed to shaking Bitcoin’s sanctuary status and establishing a correlation with risk assets instead.

Meanwhile, as CoinChapter recently reported, Bitcoin might regain its safe-haven asset title, as the latest crypto market drop came against the broad dollar rise. In detail, the broad dollar, also known as the dollar index (DXY), measures USD’s strength compared to a basket of foreign currencies.

Also read: Strong Bitcoin accumulation underway — BTC on-chain data shows.

After the Fed’s aggressive tapering policy announcement, the DXY rose to 99.7, the highest reading since May 2020.

Typically, when the Fed doubles down on the hawkish policy, investors flock back to the strengthening greenback instead of searching for alternative solutions, such as the crypto market. Thus, if Bitcoin reestablishes its sanctuary status, the Fed policy might increase sell-off pressure for BTC and, by extension, the broader digital asset market.

Also read: Bitcoin holds above $45K while crypto ownership doubles in the U.S. and Asia-Pacific.

As of publication, Bitcoin has not yet decoupled from the risk-on assets, as analytical platform Ecoinometrics previously warned. “Unless Bitcoin starts to decouple from risk assets seriously, it is worth staying cautious,” mentioned the platform.