The crypto market is currently in a bearish trend due to the woeful performance of the broader industry, with the global macroeconomic environment appearing grim.
ECB Mulls Interest Rate Hike
The United States Federal Reserve has taken aggressive action against soaring inflation. The Fed has continuously raised interest rates to more than 50 basis points, with a potential recession on the horizon.
Meanwhile, the European Central Bank (ECB) is reportedly looking to follow in the footsteps of the Federal Reserve. And according to Reuters, the ECB plans to increase interest rates by over 75 basis points. However, concern about the European monetary regulator’s hawkish move points to a possible crypto collapse.
Notwithstanding the growing worries about the state of the global economy, the ECB is set to take the next major decision on October 27.
Analysts believe that the next move will likely affect the crypto market’s recovery, whose performance has been underwhelming since the start of the year.
Central banks worldwide are in charge of safeguarding the economy against unusual economic events like inflation and recession. Central banks engage in quantitative clamping and rate hikes to stabilize the economy.
The most recent Consumer Price Index (CPI) revealed higher-than-expected inflation rates. Thus, the poor data prompts the Fed to become even more hawkish to meet its target.
The Federal Reserve and the ECB want to reduce inflation to 2%. Inflation is currently at 10% in the Eurozone, while in the United States, it is at 8.2%.
Legislators blame the high inflation on the COVID pandemic, public spending during the pandemic, and the Russia-Ukraine conflict.
To accomplish this, the Fed will raise interest rates by 75 basis points for the fifth time in a row. Meanwhile, the ECB will follow in the footsteps of the Fed as it will announce its upcoming action by October 27.
The cryptocurrency market expects fears about financial stability to cool off the aggressive central bank’s planned action. According to the World Bank, the global economy will enter a recession next year.
Meanwhile, Tesla owner Elon Musk and Cathie Wood of Ark predict deflation in the world economy.
Will Crypto Collapse?
While the imminent crash of the crypto market is not visible to many, any further interest rate hike will negatively affect the crypto market. Cryptocurrency and other commodities have plummeted following the rise in interest rates at the start of the year.
Crypto assets are seen as hedges against inflation and other market extremes. However, this is only possible if the price of digital currencies is on an uptrend. Experts noted that higher values are a headwind for crypto assets in the long run.
While the values of some commodities have fluctuated, some have retraced and moved higher. Many tokens are trading well below their previous highs as higher interest rates push them down.
On the other hand, Bank of America predicts a strong equity rally in early 2023. It is also highly probable that the market has already priced a 75-basis point increase.