Crypto post-Fed minutes selloff: Bitcoin sheds more than 7%, Ether down 11%

New York (Jan 6)  The crypto space accelerated its selloff as investors began to flee tech stocks following a more hawkish tone in the Federal Reserve December meeting minutes. Bitcoin saw a drop of around $4,000 in just 24 hours, last trading at $42,941.92, down 7.3% on the day. Ethereum plunged 11%, last trading at $3,399.66.

Crypto's overall market cap fell 8.4% in the last 24 hours, dropping to $2.17 trillion.

The crypto space was reacting to the potential of a more aggressive Fed, as the minutes from the December meeting indicated that a "tight" U.S. labor market and problematic inflation could require quicker rate hikes and a balance sheet reduction.

"Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated," the minutes stated. "Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve's balance sheet relatively soon after beginning to raise the federal funds rate."

In response, tech stocks plummeted, gold fell below $1,800 an ounce, and crypto tumbled. The Nasdaq declined more than 3% overnight, marking its biggest one-day percentage drop since February.

The next big event on markets' radar is the U.S. nonfarm payrolls (NFP) on Friday, said FXTM senior research analyst Lukman Otunuga.

"With the U.S. December jobs report around the corner, the atmosphere across the board could become tense and nervy as investors adopt a cautious stance. Whatever the outcome on Friday, the first trading week of 2022 has already kicked off with a bang," Otunuga said. "The March Fed meeting is now very much "live" with an 80% chance of an interest rate hike. The general consensus at the Fed also appears to be emerging that the maximum employment goal is now within reach, so NFP may play a big part in validating this thinking."

Bitcoin and Ethereum must manage Federal Reserve tightening in 2022, said Bloomberg Intelligence senior commodity strategist Mike McGlone.

"Price supports exiting 2021 of about $30,000 for Bitcoin and $2,000 for Ethereum appear solid. What's more probable, we think, is Bitcoin heading toward $100,000 and Ethereum breaching $5,000 resistance," McGlone said in his January outlook. "A key issue we see is the Federal Reserve, as it faces the greatest inflation in four decades, more inclined to raise interest rates if risk assets continue climbing. Cryptos are tops among the risky and speculative. If risk assets decline, it helps the Fed's inflation fight. Becoming a global reserve asset, Bitcoin may be a primary beneficiary in that scenario.

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