The move will put an end to the pandemic-era policies that have cashed the market and encouraged a nearly two-year rally in risk-focused assets. Higher inflation increases the cost of living, which could affect the investment potential of retail investors, who were a key player in crypto's astronomical rally last year.
Crypto has also struggled this year to act as an effective inflation hedge. U.S. consumer price inflation rose 7.5% year-on-year in January, while crypto market pioneer Bitcoin fell 18%.
Alex Kuptsikevich, a senior financial analyst at FxPro, spoke about the possible crypto winter.
“Rising interest rates and the depletion of private savings will play against the cryptocurrency market and bring back the “crypto winter,” as we saw in 2018."
However, Kuptsikevich noted that this is a more mature market than last time, with "periods of more restrained growth" but also "less deep dips".
In 2018, after reaching a valuation of around $800 billion, the crypto market saw a sharp decline and remained below $400 billion by early 2021.
Kuptsikevich also talked about the imminent danger in his crypto market assessment to CoinDesk last month.
Kuptsikevich mentioned that if the sell-off continues, more investors may continue to reduce their risky asset positions. Kuptsikevich claimed that the first affected market in such a situation could be the crypto market. "Investors continue to withdraw from US equities amid the anticipated tightening of the US Federal Reserve's monetary policy," he said.
Many crypto market analysts are voicing their concerns about a bear market similar to the one that occurred in 2017-2018, given the macroeconomic woes.
Bitcoin was traded at around $37,592 at the time of writing, with a 24-hour trading volume of $25.549,862,080. The price has decreased by -2.9% in the last 24 hours. While there is a circulating supply of 19 Million BTC coins, there is a total supply of 21 Million coins. FTX.US is currently the most active market where Bitcoin is traded.