Fed Is Driving Current Downturn, Crypto Billionaire Says

Cryptocurrencies are witnessing a dramatic market crash and the Federal Reserve is responsible for this downturn, said Sam Bankman-Fried, the CEO of the FTX platform.

"The core driver of this has been the Fed," Bankman-Fried said.

In an interview with NPR media, the FTX boss stated that the Fed is hiking interest rates aggressively to fight high inflation, which has led to a "recalibration" of risk expectations.

Bankman-Fried said he appreciates the difficulty of what the Fed is attempting to do, noting it is "caught between a rock and a hard place." However, the billionaire stated a lot of his own outlook for his business now depends on decisions the central bank will make in the months ahead.

Last week, the Fed raised interest rates by three-quarters of a percentage point in an effort to combat high inflation. Financial markets have already been highly jittery in recent months and cryptocurrencies have gone into full meltdown mode.

"Literally, markets are scared. People with money are scared." Bankman-Fried mentioned.

The billionaire suggested the crash could shape crypto regulation, which is being hotly debated in the US. He stated likely there will be increased scrutiny of how leverage and lending activities are used in the crypto industry, and how transparent firms are about potential dangers.

What It Means for Crypto Investors

But what can investors expect and how long will the rising interest rate impact markets? So far, the Federal Reserve has raised interest rates three times this year, in March, May, and this month. On June 15th, the Federal Reserve raised interest rates by 0.75 percentage points, the third hike this year and the largest since 1994.

That is not likely the last increase for the year, either. The chances are high that the Fed will raise rates several more times this year as it tries to get inflation under control.

The effects of higher rates have already been felt on cryptocurrency, stocks, commodities (such as gold and oil), and several other investments in 2022.

While the Fed has raised rates three times this year, it is easy to spot when capital markets traded higher in the past than currently and took notice that the central bank was serious about tightening monetary policy in November last year.

While so far crypto prices have plunged along with other risky assets, many commodities have spiked higher, including wheat, oil, and nickel.

Cryptos have responded to reduced liquidity as did other risky assets, by dropping when in November the Fed announced it would start tapering its purchases of bonds and signalled higher benchmark interest rates were soon on the way.

While crypto-assets are certainly feeling the adverse impacts of higher rates, their prices are expected to be a net positive towards the end of the year. That is because any short declines driven by an increase in interest rates will be offset by greater retail and institutional active trader adoption of the asset class.

Since prices of some commodities have skyrocketed, that could potentially complicate how fast the Fed raises interest rates. Some of such increases can be tied to the Russian invasion of Ukraine.

With the rising interest rates, investors with a long-term investing view may see it as an ideal time to buy some quality investments at bargain prices.