#34 Daily Financial News Round Up - Dec 4,2021
How’s crypto-market?
Bitcoin price is down by 9.58%. XRP, Solana and Terra are the top three traded cryptocurrencies in the last 24 hours. The top 3 gainers are Decentraland, Terra and Paxos Standard. The top 3 losers are Band protocol, Qtum, and Kyber Network.
What news caught my attention?
Bitcoin's price reached its lowest in weeks to $42,000 during Saturday early hours. The price decline is more than 20% as investors unloaded riskier assets from their portfolios. Cryptocurrencies and stocks are part of this sell-off. Concerns over omicron variant increased volatility in the markets. Another possible factor is an increase in interest rates by the Fed. For more than a decade, interest rates have been close to zero. A low-interest-rate environment decreases the returns for investors, resulting in investors looking for alternative assets to get higher yields. Hence, the move towards risky investments. The Fed's current actions make higher interest rates more possible. In high-interest rate environments, holding risky assets is no longer attractive, possibly explaining the crypto sell-off.
Another potential factor was a large sell order observed in the crypto derivatives market, triggering investors' margin calls and liquidation. Crypto exchanges such as Binance introduced leveraged trading of cryptocurrency derivatives. Using futures contracts, traders can bet on the rise or fall of an asset and traders are also allowed to make oversize bets resulting in multiple levels of leverage.
Declining jobless rates gives Fed confidence to continue with the tapering process. What is taper? Fed's stimulus process to help the economy include two steps - 1. keep interest rates low and 2. invest in bonds to keep yields low. Fed's taper includes easing on the above two steps, essentially making it hard to borrow money.
My Takeaways:
Fed holds strong on their tapering process. A potential increase in interest rates seems to have triggered stock sell-off as well as crypto sell-off. Ether saw a 15% decline, while Bitcoin experienced a 20% decline in its prices.