What happened
Most cryptocurrencies fell along with stocks today after Federal Reserve Chairman Jerome Powell addressed the country in a widely anticipated speech from the Fed’s Jackson Hole Economic Symposium.
Over the last 24 hours, the price of the world’s second-largest cryptocurrency, Ethereum (ETH -10.48%), traded roughly 6.2% lower at 12:18 p.m. ET today. The prices of the meme tokens Dogecoin (DOGE -7.19%) and Shiba Inu (SHIB -9.02%) traded nearly 4% and 5.2% lower, respectively.
So what
Investors had been awaiting Powell’s speech all week because the market has been looking for more clarity regarding how the Fed will proceed with interest rate hikes, as well as how Powell is currently viewing the economy.
Image source: Getty Images.
After new data in July showed that inflation might have peaked, the Fed raised its benchmark overnight lending rate, the federal funds rate, by 0.75% at its July meeting. But Powell also said at the time that the Fed might be able to slow the pace of rate hikes later this year if the data starts to look better. This led to a rally in stocks up until recently, when the market realized that it may have misinterpreted the Fed.
Powell made it very clear this morning that the Fed is not done in its bid to rein in some of the highest inflation seen in 40 years, which means more rate hikes are likely.
“While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the committee will need to see before we are confident that inflation is moving down,” Powell said earlier today.
As of this writing, the Dow Jones Industrial Average had shed 650 points, as of this writing, while the Nasdaq Composite had given up 2.8%. Cryptocurrencies have not fared well this year, which has seen the federal funds rate jump from practically zero to a range of 2.25%–2.50%.
Cryptocurrencies are considered very risky assets given their volatility and how difficult it can be to truly value them. Higher interest rates make safer assets yield more, thereby making them more appealing. The price of Ethereum has fallen by more than 57% this year, while Dogecoin is down almost 62% and Shiba Inu is down a similar amount.
Still, most analysts didn’t expect Powell to suddenly turn dovish and think there could be a modest relief rally for Bitcoin (BTC -6.47%) sometime in the near future, and therefore likely the whole crypto market. Yuya Hasegawa, an analyst at the crypto exchange Bitbank, said “the bad news and surprises from the symposium will be all behind” and that may enable at least some kind of rebound.
Now what
Powell said pretty much what I expected, given the available data. July inflation data was good news, but it was largely driven by a drop in energy prices, which still could march back up, and consumer prices are still very high in general.
With that said, I’ll be watching August inflation data very carefully. Two months in a row of easing consumer prices will be a very good sign. Remember, all of the Fed’s rate hikes have happened between March and August and likely have not seeped their way into the economy. When inflation eases, the Fed can take the gas off of rate hikes, which will boost crypto.
I definitely like Ethereum at these levels, especially with a big set of network upgrades soon to be completed. I have little interest in Dogecoin or Shiba Inu, given their lack of utility and considering their technical capabilities are nothing special either.
Bram Berkowitz has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
