Crypto Market Tumbles, With FED Raising Interest Rates! Is it The Start of a Market Crash?

Author: Sohrab Khawas

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    • Fed is raising interest rates when financial conditions have already going towards recession.

    • Not a good time to own bonds and stocks

    • Capital preservation is one of the fundamental principles of investing that helps reduce a portfolio's risk.

    As the market crash has just begun, the biggest question arises, will these actions by the FED have any real-time impact on inflation? Well, the history says, if we look back to years when inflation was running way higher than usual and the only compassion can be from Oct 2000-Oct ‘02 and Nov 2008-Apr ‘09, it was coupled with interest rates far above the Federal Reserve’s target interest rate of 3% to 3 ½%. 

    The Current Scenario 

    Cryptocurrencies are trading in the red early today on May 4. The global crypto market cap is $1.71 trillion, a 1.24 percent decrease over the last day. 

    Paul Tudor Jones in his interview with Altcoin Daily said the microenvironment for investors is worse than ever as the Federal Reserve is raising interest rates when financial conditions result from covid and Ukraine war have already been juggling. 

    He also insisted that it’s a generational divide and also the digital divide and the world is scrambling especially the start-ups and the intellectual capital which is floating into the space.

    However, the experts suggest that crypto won’t be a smooth road with ups and downs but crypto is growing and Paul Tudor Jones is not selling his share.  

    Jones, also mentioned that the U.S. in such a tight economic period in the FCI was actually entering  “uncharted territory” by raising interest rates. 

    Capital Preservation in Decentralized Economy: A Right move 

    He suggests that this is really not a good time to own bonds and stocks.

    The FED may announce a half-percentage point increase in its benchmark interest rate on Wednesday, to a spike in inflation to its highest level in two decades.

    This move has sunk the investor’s confidence as the central bank had only eased monetary policy during past economic slowdowns and financial crises. Right now the right move should be to prioritize capital preservation in such a stimulating environment. Capital preservation is the only option that may help small investors to sustain in the volatile market condition. 

    Also Read: How Will Crypto-Market React To the Next FOMC Meeting Held On May 3rd & 4th?

    Will it Bring the Recession Again? 

    Many on Wall Street have raised their concerns and the speculations of recession are doing the rounds in the industry. 

    As per Jones “On one hand, there is inflation and there is slow growth and this is what is clashing all the time.” 

    What Needs to be Done?  

    With such a negative market situation and red signals ahead, the longtime trader would prefer to consider trend-following strategies, which are often used as an algorithmic model to identify price trends in the market.

     Trend-following strategies are also highly recommended by wall street experts. They may be not so popular in the market right now but eventually, they will in the next five to 10 years. 

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