The effect of volatility on token prices in the crypto market has dropped recently. This comes as a result of the meeting of the Federal Open Market Committee (FOMC) last week, and the market is recovering its confidence again.
The FOMC is presenting results that align with the market expectations. However, central banks across different countries now follow the Fed’s strict policies. As a result, crypto liquidity may rise beyond market expectations.
As a result of the global pandemic and the rate at which inflation hits the whole world, the crypto market base might receive support based on those recurrences. On the other hand, crypto assets’ prices may not pull up quickly because there are many sell calls and the increased rate of derivatives delivered to the market. Overall, the market will continue to experience price shocks.
Price Shocks Becoming a Plague
Last Thursday, the Federal Reserve announced the conclusion of the FOMC. As a result of this announcement, the crypto market’s high volatility ended for some brief moment. In the Federal Reserve communication after the meeting, the body confirmed that debt would reduce, which will be a complete process in the first quarter of 2022.
Likewise, we should expect the interest rate to increase by three instead of two by June. While this may slightly differ from the market expectations, other decisions align with market expectations. The aftermath of the FOMC resolution announcement saw the crypto market bouncing back over the period. Bitcoin‘s (BTC) price was stable at $47,000 after closing at around $50,000 days before stabilization.
Also, Ethereum (ETH) price has a similar occurrence. But on the volatility benchmark, the volatility playing out in the market is back to normal as opposed to the suggested volatility both in the short term and medium term. But based on skewness, the market has more confidence than recovering better with the price. This explains that another market bull run is inevitable.
Despite the FOMC meeting ending already, post-meeting communication has ripple effects. Part of the effects is the slow performance of the crypto market. With observations of the Fed’s liquidity performance, some top capital markets are now following up the process. As a result, crypto investors should expect liquidity sooner than assumed. The futures market also has an obvious response. Majorly, they tend toward the zero line.
Other Factors’ Effects Post FOMC Meeting
It is essential to ask if the downward ride happening in the crypto space will continue. As much as there are indications that it may persist, there are convictions that it may not last long.
One of the primary reference points for the continued adoption of crypto is the anti-inflation feature it presents. This makes it possible for the crypto prices bottom to receive massive support. Likewise, the COVID-19 Omicron outbreak in Europe comes with uncertain economic possibilities. As a result, investors now seek ways to avoid the risk associated with the uncertainties.
Investors are winning this race by buying valued assets such as bonds. Also, they are leveraging quality assets that can create a haven as a hedge over inflation. Overall, the Fed’s policy is interpreted as rays of hope for the future.
Although there is an established tolerance level for the increased interest rates is established. This is enough for moderation. While there is a bet that price hikes will reduce in no time, the government should create an economic system that will significantly reduce inflation. On the other hand, unemployment should drop by 3.5%. But policymakers should pin down the primary interest rate.
Investors now have relevant direction on the impact of the Fed’s policy after comparing the crypto market prices before and after the meeting. Aside from the common factors contributing to price fluctuations in the crypto space, the delivery of annual derivatives adds to the entire process.
And crypto traders now seek ways to mitigate risk by having reversal portfolios.
However, price shocks might persist for a while in the short term. This is a result of delivering derivatives and the consequential effects of the FOMC meeting. But this hasn’t stopped participants from demanding cryptos. Meanwhile, the crypto market might bounce back in the first quarter of 2022 if the derivatives delivery completes.