Crypto market speculators aren’t showing much optimism ahead of the Federal Reserve's interest-rate decision this week.
Following August’s worse-than-expected U.S. inflation data and the completion of Ethereum’s major software transition last week, the total market capitalization of crypto assets sold off by 15% in the last week from $1.07 trillion to $913 billion by early Monday.
The market cap now hangs at $927 billion, according to Coinmarketcap, ahead of the Wednesday's Fed meeting where policymakers are expected to deliver the third 75-basis-point hike of the year to combat runaway prices.
"Everybody in crypto is now a macro analyst," said Martin Leinweber, a former fixed income portfolio manager and current crypto strategist with indexing firm MarketVector, told Yahoo Finance. "Everybody is looking at what [Fed Chair] Jay Powell is saying and watching the fed fund futures rates."
Bitcoin dropped as low as $18,469 early Monday, but now is trading at $19,115, a 14% drop over the last week.
Since its Merge upgrade finished early Thursday morning, ether has fallen by 22% and is changing hands at $1,343 a piece midday Monday.
Based on crypto’s total market capitalization value, ether has lost as much as 2.5% of its share and currently makes up 17.8% of crypto’s total value, down from last Tuesday's peak of 21%. Bitcoin’s share has remained roughly unchanged during the same period.
Bitcoin's correlation with equities and bonds, which changed course over the summer, rising again, according to data from crypto research firm Kaiko.
“Inflation uncertainty coupled with Fed tightening has resulted in a historical decline in both risk and fixed-income assets, challenging traditional asset allocation approaches,” Kaiko’s team wrote Monday.
Year to date, bitcoin has sold off 59%, slightly better than ether (-63%). Meanwhile, the NASDAQ and S&P 500 indexes have sold off by 27% and 19%, respectively. The iShares Aggregate Bonds ETF (AAG), which tracks the U.S. investment-grade bond market, has fallen by 13% year to date.
To escape downward volatility, crypto investors have rotated back into stablecoins with the cumulative market share of the three major stablecoins — Tether, Circle’s USD coin, and crypto exchange Binance’s BUSD — having gained 2% since this time last week.
The other major uncertainty for crypto's remaining 2022 is regulation, according to Nico Cordeiro, CIO of quant crypto fund Strix Leviathan.
"That's the big unknown and it seems like the SEC has gotten much more aggressive in wanting to police the space," Cordeiro told Yahoo Finance.
Last week during a congressional hearing, Securities and Exchange Commission Chair Gary Gensler said crypto staking could trigger securities laws. The following day, the U.S. Treasury Department issued a wide range of reports asking both the SEC and CFTC to crack down on the crypto sector.
"Like every hedge fund, we spend a lot of money on lawyers and there's just a lot of gray area," Cordeiro said. "Really anything getting passed through Congress could clear things up."
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David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at @DsHollers
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