Why Cardano Is Sinking Today
Key Points
The Federal Reserve cut its benchmark overnight lending rate by a quarter of a point at its October meeting yesterday.
Fed chair Jerome Powell said at a press conference yesterday that another interest rate cut in December is by no means a sure thing.
Cryptocurrencies typically perform better in a lower-interest rate environment.
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Since yesterday afternoon, the price of Cardano (CRYPTO: ADA) traded 6% lower as of 11:32 a.m. ET today, likely due to comments from Federal Reserve chair Jerome Powell yesterday regarding the future path of interest rate cuts.
Powell throws cold water on the market's December rate cut hopes
As expected, the Fed concluded its October meeting yesterday with a quarter-point interest rate cut, bringing the federal funds rate inside a range of 3.75% to 4%. But to the market's dismay, during the post-meeting press conference, Powell said, "A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it."
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One week ago, traders betting on changes to the federal funds rate placed a 91% chance that the Fed would conduct another quarter-point rate cut at its December meeting. Following Powell's comments, the likelihood of this happening has fallen drastically and as of this writing, sat at about 75%. So the market still thinks there's a good chance of another rate cut in December, but it's not as much of a certainty as it was.
The crypto sector is heavily impacted by broader macro moves and monetary policy. Due to how volatile cryptocurrencies have been, crypto is considered an inherently riskier asset, and riskier assets tend to perform better in a lower-rate environment.
It wasn't all bad
The good news is the Fed said it plans to end quantitative tightening sometime in November. Quantitative tightening is when the Fed reduces it balance sheet, effectively sucking money out of the economy. More money circulating through the economy tends to be positive for cryptocurrencies.
Cardano is a cryptocurrency that I view to have potential, due to its strong technical network. Still, the token has been volatile and there is competition, so I'm only recommending a smaller, more speculative position right now.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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