Why Is Crypto Crashing? Bitcoin Plunges After US Jobs Shock as $200B Is Liquidated in 15 Minutes

The cryptocurrency market was dumped en masse on fears over what the Federal Reserve’s next interest-rate decision may be, which saw more than $200 million of crypto market value liquidated in just 15 minutes.

The abrupt move came amid yet another shift in expectations for US monetary policy, as the prospect of the Federal Reserve raising its benchmark interest rate moved back to center stage for markets, putting pressure on risk-sensitive markets including cryptocurrencies. Cryptos tend to be sensitive to changes in liquidity expectations and borrowing costs, and were forcefully repriced lower.

The latest volatility is seen as a sign that investors are still divided about the Fed’s September meeting. U.S. Federal Reserve Governor Christopher Waller said on September 3 that inflation is still meaningfully above the Fed’s 2% goal even after recent disinflation in some economic data.

Waller said he would be inclined to leave the federal funds rate unchanged if incoming data for August confirm the improvement in inflation, but would be prepared to raise rates if the improvement is temporary.

But that uncertainty kept investors cautious around any data from the U.S. Stronger than expected job gains in August, for instance, raised the prospect that policymakers may have to keep a hawkish stance longer or even raise rates. It shows how quickly sentiment can shift when investors try to anticipate the Fed’s next move.

The crypto market quickly reacted, with total market capitalization dropping by more than $200 million in a fifteen-minute time span, presenting the digital-assets market’s sensitivity to changes in the macroeconomic outlook.

The speed and scale of this decline also shows how quickly market capitalization in general can contract when sell pressure occurs in major cryptocurrencies.

Expectations of interest rates matter because tight monetary policy is associated with higher borrowing costs and lower risk appetite. A market surprise due to rising expectations for U.S. interest rates can increase volatility for some speculative assets through portfolio adjustments to new liquidity conditions. The latest sell-off comes against such a backdrop of shifting expectations.

The next two-day Federal Open Market Committee policy meeting is set for September 15-16, and both inflation data and comments from Federal Reserve officials over the next few weeks will be carefully scrutinized for clues as to whether the Fed will hold rates steady or hike again.

The episode shows that crypto trading seems to still be ruled by macroeconomic indicators, with a change in expectations of U.S. monetary policy leading to a sharp move in cryptocurrency prices across the board, wiping hundreds of millions of dollars worth of cryptocurrencies in minutes.

While uncertainty over rates remains one of the biggest drivers of short-term volatility, traders will be watching the next few inflation reports to see if they meaningfully shift expectations ahead of the next FOMC meeting.

Source: <a href="https://bitcoinfoundation.org/news/bitcoin/why-is-crypto-crashing-bitcoin-plunges-after-us-jobs-shock-as-200b-is-liquidated-in-15-minutes/” target=”_blank” rel=”nofollow noopener”>bitcoinfoundation.org