Bitcoin, Ether Fall As Fed Move Hits Crypto
Cryptocurrencies came under pressure on Wednesday after the Federal Reserve delivered another big rate hike and warned of economic pain from aggressive policy still to come.
Bitcoin, the largest token, fell as much as 4% and came perilously close to falling below $18,000, within touching distance of levels last seen in 2020. The second largest coin, ether, continued to underperform, losing up to 7 .2%.
The Fed’s determination to raise interest rates to levels that curb inflation at the expense of falling asset prices sent a chill across global markets. Shorter-maturity Treasury yields jumped while long-term yields fell, fueling a bond-curve inversion seen as a harbinger of recession.
Such a backdrop leaves little breathing room for crypto markets. They were already reeling from a $2 trillion drop from a record high in 2021, an unrecoverable pockmarked by explosions like the Three Arrows Capital hedge fund and the Terraform Labs project — whose co-founder, Do Kwon, is wanted by the authorities.
“If the Fed continues to tighten, unless it implements yield curve control to keep the curve positively sloping, the cryptosystem will see many more failures,” said Brian Pellegrini, founder of Intertemporal Economics. “At the end, a few very rich champions will emerge, but in the meantime, there will be blood in the streets.”
The MVIS CryptoCompare Digital Assets 100 index is down this week, taking its losses for 2022 to around 62% compared to 22% for global stocks. The correlation between stocks and bitcoin is elevated and near a record, a sign of how assets are being thrown around by common macro factors.
JPMorgan Chase & Co. CEO Jamie Dimon didn’t help the mood in digital asset markets by reaffirming his skepticism, calling tokens “decentralized Ponzi schemes.”
Bitcoin was at around $18,670 at 21:50 in Los Angeles. Ether was at around $1,260 and continues to take an extra hit as an earlier rally sparked by hype surrounding its ethereum network upgrade winds down. Coins such as solana and avalanche were also in the red.
Some traders may look to measures such as bitcoin’s 14-day relative strength index to confirm that a bounce is possible. The RSI, a momentum gauge, is near oversold levels. But contrarian bets appeared few and far between for riskier assets after the Fed’s lackluster performance.
– Bloomberg writer Carly Wanna contributed to this report.
