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Last week, Bitcoin, Ethereum, and Solana all experienced significant drops in value.
Why did this happen?
To understand, let’s use an analogy: imagine if an aircraft had a five-minute delay on steering adjustments made by the pilot. This delay would make flying a nerve-wracking experience, similar to how the Federal Reserve manages the US economy with interest rate adjustments.
Each time the Federal Reserve adjusts interest rates, it takes a staggering eighteen months for the effects to manifest in the economy. This delayed response means that by the time warning signs appear in economic data, it is often too late for the Fed to make quick adjustments to prevent a crisis.
Over the past year, the Federal Reserve has been trying to navigate a delicate balance: weaken the economy enough to avoid hyperinflation while preventing a recession, essentially aiming for a ‘soft landing.’
This delicate balancing act is akin to trying to fillet a fish with a hammer.
Approximately a month ago, signs of a mild economic slowdown began to emerge, indicating a potential soft landing. However, over the past week, data revealed a faster acceleration of economic weakening, with decreasing payrolls and rising unemployment rates surpassing expectations.
This heightened fear in the market triggered a significant sell-off.
Bitcoin plummeted from around $70k to approximately $57.1k, Ethereum saw a drop from roughly $3.4k to $2.6k, and Solana lost value from about $193 to $130.
In summary, the recent market turbulence was fueled by concerns over the economy’s trajectory and the Federal Reserve’s ability to steer it effectively.