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Ethereum slips further as Fed increases borrowing rate by 75 basis points

Posted: 17 June 2022 4:52 pm
News
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Higher interest rates have resulted in investors drifting from risk-based assets (such as Ethereum) towards traditional offerings like gold, cash.

  • The total market capitalisation of the crypto sector has slipped by 8% since 16 June, dropping to AUD$1.32T (US$932B).
  • Analysts believe ETH could fall as low as AUD$1,200 (US$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 has continued to witness massive sell-offs. The altcoin is currently down -9% over the last 24 hours and is trading below its important psychological threshold of AUD$1,500 at AUD$1,450.

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 "realised price" of AUD$2,780 (US$1,740). Realised price is the value of an asset 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.

How to buy Ethereum

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 US$40 billion project reduced to dust seemingly overnight. Popular lending platform Celcius had to halt its withdrawals recently due to lack of liquidity.

Three Arrows Capital, a crypto hedge fund with over US$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 AUD$1,200 (US$850), down almost 25% from the 16 June 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 end of the month.

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? Cut through the noise with our overview of the best cryptos to buy right now, explore some 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.

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