This Week in Crypto: Anxiety over July 27 FOMC Meeting
Knee jerk reactions and the ensuing crypto market pump
Every new week comes with expectations. It is no different in the cryptoverse with retail traders, investors, fund managers and other players making plans for a new week with set out goals to aim at and achieve.
The penultimate week was filled with social media buzz about the upcoming Ethereum Merge event (likely in September) that will see it complete a switch from proof-of-work (POW) consensus mechanism to proof-of-stake (POS) and Polygon's (Matic) official unveiling of the long awaited world's first zkEVM (zero knowledge Ethereum Virtual Machine) Layer 2 scaling solutions that is fully compatible with Ethereum, providing developers with a platform to easily build decentralised applications (dapps) on the Ethereum network with less friction. This big news caused so much excitement amongst Ethereum maxis and led to a 38% and 85% price surge respectively for the two crypto assets from early July market dump leading into the weekend before the July 27 FOMC meeting as seen in the charts below.
FOMC July Interest Hike. How did the markets react?
The new week came with so much anxiety. The big question in many circles were, “will the Feds stick with the expected 75 basis points (0.75%) hike in interest rates for the second time on July 27 or go for more aggressive rates as much as 100bps (1%)?
In response to this looming uncertainty, the crypto and equity markets experienced minor corrections as most traders exited their positions and chosed to stay on the sidelines than trade to see how the markets will react post FOMC meeting. The Feds met on Wednesday and increased the interest rates by 0.75% as expected for the second time in a row in a bid to curb rising inflation and bring borrowing rates to an average range of 2.25 - 2.5% to date.
The announcement which came as no major surprise to the markets led to stocks rallying and sparked a mini alts season in crypto with most alts seeing massive pumps of 40-85% in prices two days after the Feds meeting. DeFi protocols such as $Wing and $UnFi have seen their prices jump by 1025% and 250% respectively in that same period.
Going by the recent price action events, it can be inferred the latest Fed interest hike was priced-in by the market and the response is the massive short term alts season we haven't seen in a very long while. Whether this mini season will last long enough to bring crypto enthusiasts out of a boring, painful crypto winter into a new bull cycle is something that remains to be seen.