Interest rates are rising and so is crypto

Traders lost hundreds of millions in short positions in the last few hours, the Fed significantly increased interest rates, and, in addition, institutional investors and miners also joined the cryptocurrency sell-off. None of this news sounds too optimistic, but the prices of almost all cryptocurrencies are rising. Let’s, therefore, discuss the individual points a little more closely.

Short positions recorded significant losses

The two largest cryptocurrencies (BTC and ETH) saw significant price increases despite the US Fed’s expected rise in interest rates. It seems traders did not anticipate this movement, and many were thus caught in the trap. They lost more than $202 million in short positions in a relatively short time. According to CoinGlass, as many as 88 140 traders were liquidated within one day. Short liquidations are led by ETH – $165 million, followed by BTC with liquidations worth $116 million. The top 3 of this unpleasant statistic is closed by Ethereum Classic (ETC) with $31 million.

The positive price movement of most relevant cryptocurrencies took the total market capitalization just above the $1 trillion level, representing a 7.15% increase in 24 hours. Bitcoin (BTC) currently boasts a market capitalization of $438 billion and an increase of more than 7%. At the time of writing, it is trading at $23,947. However, despite the positive development of the last few days, BTC is still in down 66% from ATH ($68,789).

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The situation is very similar for ETH, which recorded even more significant growth at 11%, and its capitalization thus reached 197 billion dollars. It is currently trading at $1 634, an almost identical 66% decline from its November 2021 ATH.

The Fed raised interest rates exactly as expected

This happened yesterday, and interest rates were increased by 75 basis points. Mentioned step met the expectations of various analysts almost to the letter. We follow a similar approach of the ECB, which increased rates by 50 basis points. Although it was a logical step, many investors were surprised, because the ECB raised interest rates for the first time in an incredible 11 years.

Central banks from all over the world are trying to control the soaring inflation, whose growth rate has been the fastest in the last four decades. However, they must find a balance, as too large rate increases would result in throwing the economies into recession. As rising interest rates slow corporate growth, institutional investors have swapped cryptocurrencies and stocks for less risky investments. These include, for example, corporate and government bonds.

Read also: The ECB introduced a new tool to navigate markets better

Institutions started BTC sell-off

Over the past few months, BTC sales have intensified significantly, and institutional investors have been seen to sell a large percentage of their holdings. Together, they sold up to 1% of the total BTC supply in just two months. These sell-offs rocked the market quite substantially, but luckily they were not announced at the time of the sales, which probably saved us from even more panic.

For example, Elon Musk’s Tesla sold its BTC and got rid of up to 29 060 BTC worth over a billion dollars. It represented up to 75% of their BTC holdings, and the sales took place sometime in the last two months. Miners also joined the sale, releasing 4 556 BTC on the market in May alone. It was the first time miners sold more than they mined in a month. This situation repeated in June when they sold up to 14 600 BTC.

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Up to 236 237 BTC have reached the market in recent months, representing approximately 1% of the total amount in circulation. However, the sell-off has started to recede slowly, and it seems that investors, despite the red numbers in their portfolios, have moved into the accumulation phase instead of selling with a loss. Currently, cryptocurrencies are no exception, and their prices are mainly driven by the overall economic situation in the world. In the last few days and hours, they have seen exciting price increases, but many analysts warn us not to be overly bullish, as the macroeconomic data are far from positive.