Ether prices recently fell to more than two-month lows at a time when many investors are expecting central banks to raise interest rates further in a bid to bring inflation under control.
The digital currency, the second most valuable by total market cap, fell to $1,280.00 on TradingView today.
At the time, the cryptocurrency was down more than 10% over the course of 24 hours and was trading at its lowest level since around mid-July, additional TradingView figures show.
After this move lower, the digital asset rallied and was hovering near $1,350 at the time of writing.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
Challenging market conditions
In explaining these recent price moves, market watchers indicated that there are few reasons to be bullish.
Additionally, they highlighted the widespread expectation that central banks will continue to tighten monetary policy, a development that could create headwinds for cryptocurrencies.
Ethereum’s so-called merge, which switched the platform from Proof-of-Work to Proof-of-Stake, provided significant visibility, but Ether, the platform’s native digital currency, fell over 10% on the day of the event.
Tim Enneking, managing director of Digital Capital Management, explained this pullback very simply, stating that it was “an absolute textbook example of ‘buy on rumor, sell on news'”.
“Now that the merger is complete, there are no more significant milestones to act as catalysts,” said Joe DiPasquale, CEO of cryptocurrency hedge fund manager BitBull Capital.
Andrew Rossow, a Web3 tech attorney, offered a slightly different perspective.
“While I agree that the crypto market lacks certain bullish factors at this point, we have to remember the inflationary environment we are in right now – macros will almost always win as interest rates will start to rise again,” he explained.
Marouane Garcon, co-founder of cross-chain decentralized exchange WhaleSwap, also had his say, describing a situation where many investors have taken a “wait and see” approach.
“I agree that there isn’t much to be optimistic about right now and I think everyone is just waiting on the sidelines for the bad news from central banks,” he said.
central bank concerns
The Federal Open Market Committee is scheduled to meet on September 20-21 and the Bank of Japan has scheduled a monetary policy meeting for September 21-22.
Should central banks continue to hike interest rates, the move will put upward pressure on the cost of borrowing and potentially create headwinds for cryptocurrencies by bringing higher yields to interest-bearing assets, making them more attractive to investors.
Market watchers expect the FOMC to announce another large rate hike, although the magnitude of that hike remains to be seen.
Analysts at investment bank Nomura recently predicted these policy members will raise the federal funds rate by 100 basis points, citing the need for aggressive central bank action, Reuters reported earlier this month.
“For some time we have highlighted the build-up of a wage-price spiral and increasingly unanchored inflation expectations as factors that could keep inflation elevated for longer, requiring a stronger Fed response,” the analysts said in a statement.
However, data collected by the CME FedWatch Tool at the time of writing showed an 84% probability that FOMC members would hike the central bank’s benchmark interest rate by 75 basis points.
The resource projected a mere 16% chance that those rates would rise 100 basis points as a result of the upcoming meeting.
Disclosure: I own some Bitcoin, Bitcoin Cash, Litecoin, Ether, EOS and Sol.