A significant selloff in cryptocurrencies intensified during Sunday evening U.S. hours, with Bitcoin (BTC) and Ethereum (ETH) plummeting to their lowest levels in months. Bitcoin has dropped 12% in the past 24 hours and 20% over the past week, while Ethereum has seen a more severe decline of 21% in the last 24 hours and 30% over the past week, erasing its entire year-to-date gains.
The CoinDesk 20 Index, which tracks the performance of major cryptocurrencies, has also fallen by 12% in the past day.
The sharp correction in the crypto and broader financial markets appears to have been triggered by recent actions from the Bank of Japan, which raised its benchmark interest rate last week. This monetary policy shift led to a stronger yen and a significant drop in the Nikkei stock index, which is down 15% over the past three sessions and 20% from a peak in mid-July. The Nikkei continued its decline early Monday, falling another 6%.
The repercussions of the Bank of Japan’s rate hike extended to U.S. markets, where the Nasdaq fell over 5% during the final two sessions of the previous week. Nasdaq futures were down 2.5% in Sunday evening trading.
Adding to market turbulence, the U.S. Federal Reserve’s recent decision to hold rates steady and its unexpected reluctance to commit to a rate cut in September have contributed to market uncertainty. Previously, a rate cut was widely anticipated. Currently, traders are pricing in a 100% probability of a rate reduction in September, with a 71% chance of a 50 basis point cut and a 29% chance of a 25 basis point reduction.
On the bond market front, the U.S. 10-year Treasury yield has decreased to 3.75% as of Sunday evening, down from 4.25% just a week ago, and significantly lower than the current federal funds target range of 5.25%-5.50%.
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