The Federal Reserve may raise interest rates by 75 basis points this week, Bitcoin fell below $22,000, and the market was "extremely fearful"

All eyes this week are on the Federal Reserve’s interest rate decision on Wednesday, as the central bank once again prepares to raise rates in an attempt to slow inflation, which has been at its highest in four decades, without pushing the U.S. economy into recession. Some analysts now expect the Fed to raise rates by 75 basis points on Wednesday.

The prospect of steeper rate hikes has added to price pressure in crypto markets, with Bitcoin falling for an eighth straight session, recovering slightly after falling to a 30-month low of $20,834.50 late Monday. It is still down more than 5% over the past 24 hours, trading at $21,563 at press time.

Arcane Research noted in a report on Tuesday that not only Bitcoin but all cryptocurrencies have been hit in the current sell-off, tracking the sharp decline in the stock market. “Investors should be prepared for volatility for at least the next few days,” Arcane researchers wrote.

The Bitcoin Fear and Greed Index reached 8, indicating extreme fear. While the market has been in the extreme fear zone for the 56th consecutive month, this level has not been seen since March 2020.

On Tuesday, the S&P 500 fell about 0.4%, while the Dow Jones Industrial Average fell 0.5%. The tech-heavy Nasdaq Composite rose 0.2%.

The 10-year Treasury yield continued to soar, briefly topping 3.4%, as the Wall Street Journal reported that Federal Reserve officials may consider raising interest rates by 0.75 percentage points this week to fight inflation. Data on Friday showed that consumer prices rose at an annual rate of 8.6% in May, bringing inflation to its fastest pace since the 1980s, despite steps the Fed has taken to cool the economy. The two-year Treasury yield - which typically rises in anticipation of a Fed rate hike - rose to 3.279% from 3.047% on Friday, a 15-year high.

Fed officials have said raising interest rates to reduce inflation is their top priority. The Fed raised rates by half a percentage point at its May meeting, following a small increase in March, the most aggressive rate hike in more than 20 years.

“Fed officials, who only recently expressed hope that inflation would slow this year, will now have to contend with a backdrop in which price increases are accelerating despite a rapid tightening of financial conditions,” Citigroup economists wrote.

Traders see a 94% chance of a 75 basis point rate hike being announced on Wednesday, according to the CME FedWatch tool.

Goldman Sachs changed its forecast for the next rate hike to 75 basis points. "So our best guess is that (the WSJ article) is a hint from Fed leadership that a 75 basis point hike is coming," said Jan Hatzius, chief economist at Goldman Sachs.

The cryptocurrency sell-off continued into Tuesday morning, with the magnitude of the sell-off easing after the industry’s “Black Monday” saw more than $1 billion in crypto derivatives liquidated in 24 hours.

Overall, the total market value of cryptocurrencies has shrunk by more than two-thirds since peaking in November, falling from a peak of $3 trillion to $952 billion as of 11 a.m. New York time on Tuesday.

According to DeFi Llama , the total market capitalization of stablecoins is currently $158 billion, down 16.4% from the peak of $189 billion on May 1 and down 1% on the day.

Analysts remained extremely cautious as investors await the Federal Reserve's Federal Open Market Committee meeting and press conference on Wednesday.

Edward Moya, senior market analyst at Oanda, noted: "If Wall Street makes a very hawkish decision, U.S. Treasury yields and the dollar could surge again, which would test the bottom line of many cryptocurrency traders."

Moya continued, “If Bitcoin falls below the $20,000 level, support may not emerge until the $17,000 level.”

Coinbase made headlines on Tuesday when it announced that it would lay off 1,100 employees, or 18% of its workforce, in an effort to remain financially sound. "After more than a decade of economic prosperity, we appear to be entering a recession," Coinbase founder and CEO Brian Armstrong said in a blog post this morning. "A recession could lead to another crypto winter that could last for a long time. During past crypto winters, trading revenue (our largest source of revenue) declined significantly."

Coinbase is the latest crypto company to announce layoffs, including rival exchanges Gemini and Crypto.com , as well as BlockFi , which have all cited the "crypto winter" as the main reason for the cuts.

Financial experts recommend that consumers take some key money steps to put themselves in a better financial position and prepare for the coming recession. These steps broadly include paying down debt and shoring up personal budgets to withstand any sudden economic shocks.

Cathy Schaeffer, a certified financial planner, vice president and manager of family advisors at Baker Boyer in Walla Walla, Washington, said now is the time to "really look at your personal budget and figure out some ways to be more aggressive in paying down debt as these rate hikes are expected to continue."