At 3 a.m. today, Federal Reserve Chairman Jerome Powell's speech caused huge fluctuations in global financial markets. The content of his speech not only concerns the future direction of the U.S. economy but also directly affects the cryptocurrency market, leading to a sudden drop in the prices of Bitcoin and other cryptocurrencies.
Key points of Powell's speech
Powell emphasized the Federal Reserve's confidence in future inflation targets during his speech. He stated that despite facing numerous uncertainties, the Federal Reserve is confident that inflation will sustainably return to the 2% target level. This indicates that the tightening monetary policy has already achieved initial results, helping to restore the balance between total supply and total demand, alleviate inflationary pressures, and maintain stable inflation expectations.
Powell also mentioned the changes in the labor market. He pointed out that the labor market has significantly cooled from its previous overheating state, with the unemployment rate rising to 4.3%. Although still at a historical low, it has significantly increased compared to the beginning of 2023. This change indicates that the labor market is no longer the main source of inflationary pressure.
The necessity of policy adjustment
Powell clearly stated that it is time to adjust policies. The timing and pace of future rate cuts will depend on the performance of economic data, changes in outlook, and the balance of risks. This statement provides a clear signal to the market regarding a policy shift.
The reaction of global financial markets
In terms of global stock markets, there was a generally positive trend following Powell's speech. However, the cryptocurrency market saw a completely different situation. The entire crypto market, including Bitcoin, collapsed collectively, and some trading platforms even suspended withdrawals and crashed. So, what exactly caused this major collapse?
The complex factors in the virtual currency market
The sharp decline in the prices of LUNA and UST coins, along with the excessive collateralization and circular borrowing in DeFi (decentralized finance), coupled with some participants choosing to invest with high leverage and the misappropriation of user funds, has led institutions to experience a liquidity crisis, creating a death spiral of liquidations. These factors together intensified the panic in the market.
The U.S. Securities and Exchange Commission (SEC) is investigating whether the largest cryptocurrency trading platform in the U.S., Coinbase, improperly allowed Americans to trade digital assets that should be registered as securities. The SEC believes that nine of the tokens listed on the Coinbase platform are actually securities. This news further undermined market confidence.
The future prospects of cryptocurrencies
In the face of such severe market volatility, many people have questioned the future of cryptocurrencies. In fact, this round of plummeting may not just be a simple bear market, but rather a result of significant market structural issues and regulatory pressures.
The high volatility of the cryptocurrency market itself is one of its main characteristics. Compared to traditional financial markets, the cryptocurrency market is younger and lacks mature regulatory mechanisms. This makes the market more susceptible to external influences, resulting in severe fluctuations.
The uncertainty of regulatory policies is also one of the important reasons for market turmoil. Different countries have varying attitudes towards cryptocurrencies; some support their development while others take a cautious approach. This uncertainty increases market instability, making it difficult for investors to make long-term plans.
Despite numerous challenges, cryptocurrencies still possess immense potential. Blockchain technology, as the core technology behind cryptocurrencies, has already shown broad application prospects in various fields. With continuous development and improvement of the technology, it is believed that more application scenarios will emerge in the future.
Conclusion
Federal Reserve Chairman Powell's speech triggered violent fluctuations in the cryptocurrency market, but this is the result of multiple factors acting together. Whether it is structural issues within the market or changes in the external regulatory environment, both are impacting the development of the cryptocurrency market. For investors, maintaining a rational and prudent attitude is especially important. Only by fully understanding market dynamics can one better cope with future uncertainties.
