Cryptocurrency and stock prices have come under pressure in the past few weeks. The S&P 500 index has retreated in the past five straight days and is now sitting at its lowest point since February 22nd.
Stocks and cryptocurrencies have plunged
Similarly, the Nasdaq 100 index has dropped by over 6.20% while the Dow Jones has retreated for nine straight days. The Dow Jones is sitting at its lowest level since January this year.
Cryptocurrencies have also crashed hard, with Bitcoin price moving from the year-to-date high of over $73,000 to below $60,000. Ethereum has crashed from $4,100 to a low of $3,000. Other coins like Axelar, Gala, Jasmy, Cardano, and Avalanche have also dived.
The biggest concern among investors is that the crisis in the Middle East is escalating. On Friday morning, Israel launched an attack against Iran following last weekend’s attacks. As a result, there is a risk that the crisis could escalate in the coming weeks.
That explains why the prices of crude oil bounced back on Friday morning. Brent crude oil soared to $89 while the West Texas Intermediate (WTI) moved to $84.50. Analysts believe that it could soar to $100 in the next few weeks if the crisis escalates.
Inflation and the Federal Reserve
The implication of all this is that it will lead to inflation and affect the next actions by the Federal Reserve. Indeed, there are signs that America’s inflation is rising. The most recent data shows that the headline Consumer Price Index (CPI) jumped to 3.5% in March while the core CPI rose to 3.8%.
As a result, there is a likelihood that the Fed will not cut interest rates any time soon. In statements this week, Fed officials like John Williams, Loretta Mester, and Raphael Bostic warned that there was no urgency to slash rates. Williams said:
"I definitely don't feel urgency to cut interest rates. I think eventually...interest rates will need to be lower at some point, but the timing of that is driven by the economy."
A hawkish Federal Reserve will have an impact on all assets. In most cases, investors tend to dump risky assets like cryptocurrencies and stocks. Therefore, if the crisis continues, we will likely continue seeing weaker Jasmy, Axelar, Gala, Bitcoin, and other altcoins like Solana and Cardano.
The other implication is that the crisis is leading to more gold inflows. Gold price has jumped to over $2,400 and analysts at Bank of America believe that it will jump to over $3,000 in the coming months. There are signs that some assets are moving from Bitcoin to gold, which is widely seen as a safe haven.
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