Due to the Federal Reserve’s unprecedented vigor, some of the once-major players in the exchange-traded fund sector are now in a race to the bottom. The sources claim that the Crypto Sector ETFs have lost the most money out of all the non-leveraged funds.

Three cryptocurrency funds rank among the worst performing non-leveraged ETFs this year:

  1. $6 million Viridi Bitcoin Miners ETF (RIGZ) plunged almost by 69%.
  2.  $74 million Global X Blockchain ETF slips by 68%
  3. $46 million Breakwave Dry Bulk Shipping ETF down by  67%.

According to Bloomberg data, despite their poor performance, all four ETFs have received net inflows this year,

ETFs – Who’s to Blame for Losses?

The Federal Reserve of the United States is battling rising inflation, and to do so, the Fed has implemented a series of massive interest-rate hikes. Yet, the US inflation is far from the US 2% inflation target.

Persistently High US Inflation Rate

The recent US CPI figures released on September 13 indicated further suffering. The CPI rose 8.3% in August, exceeding the median forecast and sparking speculation that the Fed will raise interest rates by 100 basis points next week, a move not seen since 1984. For the second month in a row, annual US inflation fell to 8.3% in August 2022 from 8.5% in July, the lowest rate in four months, but it was still higher than the 8.1% predicted by the market.

Consumer prices rose 0.1% from the previous month, defying expectations of a 0.1% decline and coming after a flat reading in July. In August, the Consumer Price Index in the United States was 296.17, compared with 296.28 the previous month and market expectations of 295.53. This triggers a risk-off sentiment amid Fed fund rate hike sentiments, driving a sell-off in the crypto ETF.

Back-to-back Fed Rate Hikes Weigh on ETFs

With this fourth straight increase, the Federal Reserve has increased the target range for the fed funds rate to 2.25%-2.5%, which means borrowing costs are now at their highest level since 2019. According to Fed fund futures, the market was pricing in a greater than 81% possibility of a massive interest rate increase of 75 basis points in September.

Fed Vice Chair Lael Brainard stated this past Wednesday that interest rates would need to climb higher and remain at their current levels before the central bank can feel confident that inflation is trending toward its 2% target. She also noted that the risks of over-tightening would become more apparent at some point in the cycle.

Hence, the interest rate hike sentiment continues to weigh on cryptocurrencies and crypto ETFs.


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