Bitcoin Trading as Big Tech as Markets Wheel

Markets extended declines on Friday after Federal Reserve Chairman Jerome Powell took a more hawkish stance during his remarks on Jackson Hole. Cryptocurrencies fell further into the red as traders grew increasingly discouraged by the Fed’s likely move in September.

The S&P 500 and Nasdaq traded 2.3% and 2.8% lower, respectively, at press time. Bitcoin and Ether respectively lost 4% and 7% respectively.

“Today’s reaction to Fed Chairman Powell’s speech in Jackson Hole is somewhat surprising, as he didn’t really say anything new, at least to Fed watchers, and markets had appeared to have priced in a 75 basis point rate hike,” said Bill Cannon. head of portfolio management at digital asset fund manager Valkyrie Investments, Blockworks told.

“Powell has been transparent through his comments recently that rate hikes were necessary to cool inflation, and today’s statement reinforced that strategy,” Cannon said.

Cryptos have struggled to turn around this year. Bitcoin and Ether are both down more than 50% so far this year, and without a significant shift in macroeconomic conditions, analysts don’t expect a rebound.

“Unfortunately, with inflation, bitcoin works like a tech stock,” said Patrick Feeney, former hedge fund trader and founder of Feeney Factor.

“[Bitcoin is] supposed to be digital gold, but it just hasn’t worked out that way lately,” Feeney said.

Bitcoin Correlation and Market Expectations

Bitcoin’s correlation coefficient with the S&P 500 reached 0.64 in early May before falling to around 0.4 earlier this month, according to data from Coin Metrics. A coefficient of 1 means that the assets move in perfect sync.

However, the trend is back on the upswing, data shows, with the correlation coefficient hovering near 0.5 earlier this week.

“Over the past year, the crypto and equity markets have traded closely together,” Clara Medalie, director of strategic initiatives and research at data provider Kaiko, told Blockworks earlier this month. “What we’ve seen over the past year is that correlations tend to strengthen around key economic data releases, such as Fed meeting notes or inflation figures.”

Recent data, such as falling unemployment numbers and the latest Consumer Price Index (CPI) report, may indicate that inflation is easing. The Fed’s preferred measure of inflation, the personal consumption expenditure price index, which was released on Friday ahead of Powell’s comments, also showed prices falling in July. The year-over-year change for July came in at 6.3%, down from 6.8% in June.

Still, Powell warned on Friday that there is still a long way to go before sustained price stability is achieved.

“The estimate of long-run neutrality is not a place to pause or stop,” Powell said during his speech on the second day of the Economic Policy Symposium, hosted by the Kansas City Federal Reserve. “Our decision at that September meeting will depend on the totality of the incoming data and the evolving outlook,” he said.

Futures markets are now calling for a 60.5% chance of a 75 basis point rate hike in September, which would mark the central bank’s third consecutive increase of that size, according to CME Group data.

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