Rising U.S. bond yields are likely to blame for today’s downward price trend in the crypto market. Specifically, today’s crypto market is declining as the benchmark U.S. Treasury yield rose to its highest level in nearly two years.
According to CoinGecko, the current market cap of all cryptocurrencies is $1.16 Trillion, a change of -3.4% over the past 24 hours and -0.7% over the past year. Bitcoin’s (BTC) market cap currently stands at $544 billion, representing a 47.06% market share.
Crypto markets tank
Since mid-July, the crypto market has been in a decline, coinciding with gains in the U.S. dollar index (DXY) during the same period.
In addition, its decline coincides with the growth of U.S. bond yields. The yield on the benchmark 10-year U.S. Treasury note rose to 4.31% on August 17, the highest level since October 2022. This suggests that investors prefer yield-free cryptos like Bitcoin to secure assets.
The yields increased the day after the minutes from the Federal Open Market Committee’s (FOMC) July meeting reiterated hawkishness. Notably, the majority of Fed officials believe that inflation could remain elevated without further interest rate increases, increasing expectations for a September rate hike.
Historically, expectations of higher interest rates have been adverse for the cryptocurrency market, which likely explains the market’s decline on August 17.
According to the data below, however, the implied Fed funds futures rates forecast the first rate decreases to occur around May-June 2024. The Fed rates are anticipated to remain within the current range of 5.25-5.50 percent until then.
Fed funds futures rate. Source: Refinitiv
With a daily relative strength index (RSI) of 33.75, the capitalization of the crypto market is virtually oversold, just four points above the typical threshold. In other words, there is a high chance that the market will stabilize or recover in the coming days.
In addition, the market is attempting to find support near its 200-day exponential moving average (200-day EMA; the blue wave). If the support holds, a rebound towards $1.166 trillion, an increase of over 3% from current levels, is likely.
In contrast, bears will attempt to drag the market below ascending trendline support near $1,053 trillion, a decline of approximately 4% from current levels.
XRP price takes a nosedive – why?
Traders are digesting the latest comments from the Federal Reserve, which has resulted in a decline in the price of XRP.
Since July 20, when it reached its highest point since April 2022, XRP’s token has been under persistent pressure, propelled by optimistic expectations stemming from Judge Analisa Torres’ ruling that portions of the token sale were not a securities issuance.
Critical to the U.S. Securities and Exchange Commission’s (SEC) accusation, the judge ruled that secondary transactions of XRP do not constitute investment contracts.
Despite this favorable boost, the upward momentum that propelled the XRP price to $0.83 reversed rapidly. Investors realized that the ruling could be overturned by higher tribunals in the future. It became clear that the decision exempted only Ripple and its founders from selling through exchanges or directly engaging institutional investors.
While the SEC has submitted an interlocutory brief to convey its intention to appeal Judge Analisa Torres’ decision, Ripple’s Chief Legal Officer, Stuart Alderoty, argued that the SEC does not have the right to appeal at this time. This is why they are requesting permission to file an appeal, and Ripple is expected to submit its response to the Court within the next week.
From a broader perspective, one could argue that investors are showing a greater degree of caution. This change may be attributed to the effects of the U.S. Federal Reserve’s anti-inflation strategies, which are beginning to affect the economy by increasing financing costs.
Notably, investor Kevin O’Leary has observed a decline in lending and an increase in small business financing costs. Additionally, he has highlighted emerging vulnerabilities in regional institutions.
O’Leary suggests further that the Fed may continue to raise interest rates because inflationary pressures persist. He specifically addresses concerns about the potential impact of the Inflation Reduction Act and the CHIPS Act’s spending. O’Leary emphasizes that a significant amount of money, nearly a trillion dollars, is unused. O’Leary stated, “That money has not yet been deployed, Larry; it’s close to a trillion dollars.”
Given these conditions and the fact that Ripple and the XRP token are dealing with their own issues in an environment unfavorable to risky assets, the likelihood of a further price correction increases. Consequently, a retest of the $0.54 level, which operated as resistance in June 2023, seems highly probable.
