The once-vibrant cryptocurrency market has hit a roadblock since the close of July, with a notable pullback affecting major digital assets. The descent further intensified last week following the disclosure of the July Federal Open Market Committee (FOMC) minutes. A majority of Federal Reserve officials reiterated their hawkish stance, emphasizing the necessity for more interest rate hikes to combat inflationary pressures.
This development took a toll on prominent cryptocurrencies including Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Dogecoin (DOGE), resulting in a noticeable decline in their prices. The downward pressure persisted into the subsequent week, with Bitcoin managing to retain its position just above the $26,000 threshold. It’s worth noting that Bitcoin had scaled heights of $31,500 at the start of July, only to experience a subsequent retreat.
Cryptocurrencies Grapple with Headwinds
The Federal Reserve has pushed up interest rates by 525 basis points, driving the benchmark rate into the 5.25-5.5% range. Further interest rate hikes are anticipated to exacerbate the situation. Elevated interest rates invariably exert a negative influence on growth-oriented assets, encompassing consumer discretionary, technology stocks, and of course, cryptocurrencies.
The FOMC minutes underscored that Fed officials remain open to additional rate hikes, as inflation—though halved from its peak of 9.1% in June 2022—continues to remain double the Fed’s 2% target.
In the aftermath of the FOMC minutes release, yields on the 2-year, 10-year, and 30-year Treasuries experienced a surge. By August 21st, both the 10-year and 30-year Treasury yields hit new multi-year peaks. The 10-year Treasury yield concluded the session at 4.339%, marking its highest level since November 6, 2007. Simultaneously, the 30-year Treasury yield closed at 4.445%, representing its most elevated level since April 11, 2007.
Multiple additional concerns are also contributing to the pressure on cryptocurrencies. On August 21st, S&P Global Ratings downgraded five regional U.S. banks, indicating that the ripples of the earlier banking crisis this year are continuing to reverberate through the economy.
Earlier this month, Fitch Ratings downgraded the U.S. long-term foreign-currency issuer default rating from AAA to AA+. The agency also issued a warning that the ratings of over a dozen major U.S. banks might be subject to future downgrades.
Furthermore, in August, credit rating agency Moody’s downgraded several lenders and maintained six banks under review for potential downgrades.
In the current scenario, experts suggest that investors consider adopting a strategy of accumulating cryptocurrencies during dips. Each decline in cryptocurrency prices could present a favorable opportunity for investors to enter the market, potentially yielding substantial gains as the market’s volatility stabilizes.
Stocks to Monitor
- Coinbase Global, Inc. (COIN): COIN offers financial infrastructure and technology to support the global cryptocurrency economy. With an expected earnings growth rate of 84.8% for the current year, COIN is positioned to benefit from the ongoing crypto landscape. Shares of COIN have recorded a 31.8% increase in the past three months. Coinbase holds a Zacks Rank #3 (Hold).
- Accenture plc (ACN): ACN is a global system integrator that offers consulting and technology services. The company promotes Ethereum-based blockchain solutions for businesses, aiming to streamline payment processing. With an expected earnings growth rate of 8.2%, ACN showcases resilience in the market. ACN’s shares have gained 7.1% over the past three months. Accenture holds a Zacks Rank #3.
- NVIDIA Corporation (NVDA): As a major player in the semiconductor industry, NVDA has been a standout success story in 2023. The company’s GPUs play a pivotal role in data centers, artificial intelligence, and cryptocurrency mining. With an expected earnings growth rate of 134.7%, NVDA remains a strong contender. Shares of NVDA have surged by 47.7% in the past three months. NVIDIA boasts a Zacks Rank #1 (Strong Buy).
- Robinhood Markets, Inc. (HOOD): HOOD operates a financial services platform in the United States, offering investment options in stocks, ETFs, options, gold, and cryptocurrencies. The platform facilitates trading of major cryptocurrencies like Bitcoin, Ethereum, and Dogecoin. HOOD’s expected earnings growth rate for the current year is 57.3%, with shares having gained 22.7% in the past three months. Robinhood Markets holds a Zacks Rank #2 (Buy).
As the cryptocurrency landscape evolves, these stocks could present intriguing opportunities for investors seeking exposure to the evolving digital asset market amidst recent price fluctuations.
