Ethereum slips further as Fed increases borrowing rate by 75 basis points
Higher interest rates have resulted in investors drifting from risk-based assets, such as Ethereum, toward traditional offerings like gold and cash.
- The total market capitalization of the crypto sector has slipped by 8% since June 16, dropping to $932B.
- Analysts believe ETH could fall as low as $850 in the near term.
- Circle, the parent firm behind US dollar-pegged stablecoin USDC, has announced the launch of a euro-backed crypto token called Euro Coin (EUROC).
Staying in line with the performance of the crypto market at large, Ethereum (ETH) has continued to witness massive selloffs. The altcoin is currently down -9% over the last 24 hours and is trading at $1,001.
The ongoing slump has coincided with the Federal Reserve’s announcement that it will increase its benchmark rate by 0.75%, making it more expensive for investors to borrow funds from banks and other financial institutions. The altcoin has also continued to move in lock-step with the US equities market (especially tech stocks), confirming that investors currently view the digital currency as a “high-risk asset.”
A high-interest-rate environment equates to added “sell pressure.” Investors are foregoing high-risk assets and risk-based trade opportunities in lieu of long-term stores of value (SOV), such as cash and precious metals.
Since November last year, ETH has lost nearly 80% of its value, with on-chain data provider Glassnode claiming that the currency is now trading well below its “realized price” of $1,740. Realized price is the asset’s value at which it was acquired, divided by the number of tokens in circulation. The metric provides investors with the “average cost basis” at which the asset was bought.
The future looks bleak
Investor faith in the crypto market has eroded greatly over the last month or so following the Terra (LUNA, now LUNC) debacle, which saw the $40 billion project reduced to dust seemingly overnight. Popular lending platform Celcius had to halt its withdrawals recently due to a lack of liquidity.
Three Arrows Capital, a crypto hedge fund with over $10 billion in assets under management (AUM) as of last month, also faces insolvency risks, leading to further market damage. Ethereum’s technical suggests that any near-term rallies may just be investors trying to “cover their short trades” to prevent further losses. In fact, analysts believe that the coming week could see ETH scale down to $850, down almost 25% from the June 16 price.
Euro-backed stablecoin makes market debut
Circle Internet Financial, the parent body behind the popular stablecoin USDC, announced today that it has launched a fully reserved stablecoin pegged to the euro. Demand for crypto foreign exchange services continues to stay high, with the EUROC becoming available for trading by the month’s end.
Much like its sister token USDC, Euro Coin will be regulated and backed by an equivalent euro-denominated reserve maintained by institutions in the United States. Sources say that Silvergate Bank will be Circle’s primary custodian for its euro-pegged stablecoin.
Disclosure: The author owns a range of cryptocurrencies at the time of writing.
Trying to get a handle on the markets? Explore strategies for how to trade crypto or see if there's a better platform for you with our guide to the best crypto exchanges.
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.
