The price of Ethereum (ETH), the world’s second-largest crypto by market capitalisation, has been volatile this week. ETH has fallen approximately 6% in the past 24 hours, slipping below £1,291 in early trading on Thursday.
Week-on-week Ethereum prices have fallen more than 11%, while month-on-month, ETH is down more than 10%.
The drop came after the US Federal Reserve indicated that it was likely to increase interest rates later in the year, with a rise forecast for as early as July.
While the Fed decided to pause its benchmark target for inflation between 5% and 5.25% at its meeting on 14 June, its Chair, Jerome Powell, said he didn’t expect a cut in US target lending rates until inflation fell significantly, which could take a couple of years.
Bitcoin also fell by 3.70% in the last 24 hours, down to £19,730.
Glen Goodman, author of the bestselling book The Crypto Trader, said: “Optimism is thin on the ground in the crypto space, with the SEC consistently hammering all things crypto. Many US crypto firms are now seeking a brighter future outside the States.
“Price-wise, this has led to the miserable situation where crypto traders ignore positive moves in the stock markets, but beat down crypto prices whenever stock prices fall. Heads you lose, tails you lose.
“Bitcoin and Ethereum are both suffering after Jay Powell suggested interest rates may rise further this year. BTC and ETH tend to benefit from an easy money environment, with lots of liquidity sloshing around for people to invest in crypto. Powell has signalled further tightening of liquidity, which suggests there won’t be a lot of investment capital around to give crypto prices a boost.”
Like all cryptocurrencies, Ethereum is a high-risk investment. After an all-time high approaching more than £3,462 in November 2021, Ethereum is still down more than 60%, even after the cryptocurrency’s recent gains.
High-risk investments such as cryptocurrency can see tremendous price swings and extreme volatility, even compared with the tech-heavy Nasdaq US stock index, which is full of high-risk growth stocks.
As a relatively new asset class, nobody knows what the future holds for cryptocurrencies as investment vehicles. Predicting their price moves is very challenging. Cryptocurrencies are also subject to hacks and future regulations, which may affect their overall value.
Leading economies such as the UK and US are still in the midst of deciding whether cryptocurrencies are securities, commodities or something else entirely. The eventual decision about cryptocurrencies’ status will affect how they’re regulated and who regulates them.
If an investor chooses to invest in Ethereum, they should consult a financial advisor first and never invest more than they can afford to lose.
