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Bitcoin prices fall ahead of the FOMC meeting, ethereum drops following merge

Yahoo Finance Live anchor Rachelle Akuffo looks at how the crypto market is performing ahead of the the Fed rate hike decision announced this week.

Video transcript

- We're tracking several shifts in crypto right now. So let's take a look at the interactive for more detail here. We can see that Bitcoin is down almost 2%. We saw it was falling under $19,000 this morning before starting to climb back up. But as you can see there, still below that $20,000 mark. And we know that it's down 60% as well over the past year. Now, that's partly due to investors really bracing for that jumbo 75 basis point hike from the Fed and, of course, a strong dollar as inflation continues to persist. Now, especially you have Bitcoin, which really did lose its credibility as an inflation hedge when it started tracking its movements with equity markets.

We also saw Forbes reporting that Fidelity is still considering following in BlackRock's footsteps by offering Bitcoin trading services to its 34.4 million retail investors-- to its investors. That's going to be squeezing some of these retail investors. Now, regulators, of course, swirling amidst some of the wild swings that we've seen in crypto. We know, of course, the Bitcoin still uses the energy intensive proof of work mechanism that the White House Office of Science and Technology is proposing be banned because of its pollution.

Now, also taking a look here, which is falling even more, at the second largest cryptocurrency, which is Ethereum. We see that that's down more than 2% on the day and, honestly, down, as we take a look here, ever since we had that Ethereum merge, down about 16%, almost 17% there during that technical move to the more energy efficient proof of stake mechanism, a.k.a. the Merge.

Now, the SEC is saying that the merger means that Ether might need to be treated as a security. And that's because if you invest and stake your Ether, that means you agree to hold it for a set amount of time in exchange for rewards or passive income, then it starts acting more like a bank-issued brokerage CD. So according to the Howie test, that's more like a security than a currency.

Now, we're to take a broader look here and see how some of these other cryptos are doing. You have Ether which joined popular tokens Cardano and Solana. They were already using proof of stake. But as we can see here, Solana is one of the few in positive territory, but still faring poorly over the past year as we take a look. Both of them, Cardano and Solana, both off about 80% over the past year. It's also brought it out to Ripple and, of course, Dogecoin. Doge, basically a meme coin. That's also down about 75% over the past year as this crypto winter does continue. So looking for some hope, but seeing very little as you look across the board for crypto.

- Yeah, Rachelle. We certainly don't see too much hope. And then of course, I think the big story this week when it comes to crypto is going to be the focus on Wednesday, what we hear from the Fed. I think that is the biggest driver here of the cryptos, especially over the last couple of days. Ethereum, you mentioned the Merge. It really seems like it was a sell the news type of event.

You mentioned that 17% drop since the Merge was completed. But the movement that we're going to see over the next couple of days I think largely is tied, Dave, with what we're hearing from the Fed. If, of course, the Fed gets even more aggressive than maybe what the market is currently pricing in, we could see a bigger drop from Bitcoin. Again, now right above $19,000.

- Do ya? Because it's largely been tethered to nothing. And we've talked about this for so many years now. And, yes, it is basically tracking like a high-risk tech stock. So by that point, yeah, I guess you would expect that when the hike happens later this week. But look, the fundamentals haven't changed. There's still that fixed amount of investors.

No new investors are really coming into the space because what is it? We still don't have a practical use for Bitcoin or for Ethereum. And until that changes, until it's more simple for the everyday retail investor to get involved, and maybe that's Fidelity, I can't imagine any of the fundamentals change with Bitcoin. But I do not study such a subject. We will leave the expertise to Rochelle and the like. Just one man's opinion.