Why is the crypto market down?

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Why is the crypto market down?

Why is the crypto market down?
Image source: © Dusanzidar | Megapixl.com

Highlights:

  • Dow Jones fell over 1,000 points on May 5, the highest single-day decline since 2020.
  • In April, the US economy added 428,000 jobs.
  • The jobless rate was 3.6% in the month.

The global crypto market slumped over 8% on Friday as major cryptocurrencies declined, slipping by more than 9% close on the heels of the Fed's rate increase. Investors expect a far more aggressive rate stance by Fed in June when it meets for the next policy discussions.

Let’s discuss the possibilities that could have hit the market sentiment on Friday morning.

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Why is the crypto market down?

As major cryptocurrencies like Bitcoin continue to decline, the impact was felt in the crypto market on Friday. It comes after the stock market dropped sharply on Thursday.

As seen in the past sessions, the crypto market generally moves in tandem with the stock market. The Dow Jones dropped by more than 1,000 points on Thursday, its highest single-day decline since 2020. Likewise, the tech-savvy Nasdaq Composite declined around 5%.

The Federal Reserve’s decision to increase the interest rates by a 50 basis point on Wednesday rocked the market in the following session. The central bank also said it would start rewinding its US$9 trillion asset portfolio from June.

But investors anticipate a more aggressive stance by the bank on inflation, which may have plummeted the market sentiment, causing a panic sale. They feared further hikes could lead to an economic recession.

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What's next?

The crypto market is highly volatile and prone to various risks. However, price fluctuations in digital currencies are not new. The recent movement in the crypto market coincided with the stock market’s deceleration; thus, it may be reaffirming the belief that the stock market movement may have a bearing on the crypto market and the economic outlook.

The Labor Department’s latest jobs report for April showed that the US economy had added 428,000 jobs in April, its 12th consecutive monthly gain. The jobless rate was 3.6%.

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In a separate report on Tuesday, the department said that the job openings in the US climbed to 11.5 million, a record high since 2000. Still, a tight labor market offers a significant challenge for the economy as wage growth to retain workers could lead to higher inflation.

It could be one of the reasons why investors may be expecting more rate hikes in the coming days. These decisions, therefore, could impact both the crypto and the stock market.

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Why is the crypto market down?Source: ©2022 Kalkine Media®

Bottom line:

The global crypto market was down 8.14% to US$1.65 trillion on Friday morning, while its trading volume in the trailing 24 hours rose 37.66% to US$128.57 billion. Bitcoin (BTC) lost 9.13% to US$35,873.92, while Ethereum (ETH) fell 8.29% to US$2,683.99 at 9:13 am ET.

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