A broad weekend selloff in crypto accelerated during Sunday evening U.S. hours, sending Bitcoin (BTC) plunging to levels not seen since February and Ether (ETH) back to prices not seen since December.
Bitcoin is lower by 12% over the past 24 hours and 20% on a week-over-week basis. Ether (ETH) has dropped 21% over the past 24 hours and 30% over the past week, erasing its year-to-date gain and is down by roughly 3% since Jan. 1. The broader CoinDesk 20 Index is down 12% over the past 24 hours.
The trigger for what’s now become a massive correction in crypto and traditional markets might have been the Bank of Japan, which last week hiked its benchmark interest rate. That monetary tightening sent the yen shooting higher and the country’s Nikkei stock index tumbling. Down another 6% early Monday, the Nikkei is now lower by roughly 15% over the past three sessions and 20% from a mid-July peak.
The action in Japan spread to the U.S., where the Nasdaq slid more than 5% in last week’s final two sessions. Nasdaq futures are lower by 2.5% in Sunday evening action.
In addition to the Bank of Japan’s somewhat unexpected hawkishness last week, the U.S. Federal Reserve also surprised a few – not by holding rates steady, but instead by appearing somewhat ambivalent about cutting rates in September, which nearly all market participants assumed was a sure thing.
Whether the Fed made a policy error remains to be seen, but markets are setting their own agenda at the moment. Traders have priced in a 100% chance of lower U.S. base rates in September, with a 71% chance of a 50 basis point rate cut and a 29% chance of a 25 basis point move.
Looking further out on the maturity curve, the U.S. 10-year Treasury yield has tumbled to 3.75% on Sunday evening, down from 4.25% just one week ago. This is a full 150-175 basis points below the current fed funds target of 5.25%-5.50%.
