“We are living in this moment,” says Crypto Exec about strong market contraction

After the last minutes from the US Federal Reserve on Wednesday, both cryptocurrencies and equities saw a slight increase in trading hours on Thursday, but the bear market is far from over, analysts say.

James Butterfill, head of research at investment firm CoinShares, which focuses on digital assets, wrote in a recent research note that bitcoin “is increasingly seen as an interest rate sensitive asset”, adding to the Fed’s “aggressive move” to raise interest rates. triggered the recent fall of the cryptocurrency. A correction has been “necessary”, in Butterfill’s assessment “to flush out irrational abundance” lingering from the long-standing beef market.

Added ButterFill: “We do not think this market route is complete yet, the combination of a continued hawkish Fed and likely errors in the stock market and mining sector may well push prices down in the short term.”

Regulatory officials agreed last month that interest rates may need to rise at a faster pace to combat current record inflation, which is likely to trigger a 75 basis point increase in July, or higher, some analysts speculate. However, futures markets that take directional bets on interest rate increases have largely priced in the probability of an increase not exceeding 75 basis points.

“Interest rates affect all financial assets, this is no different for cryptocurrency,” Daniel Keller, co-founder of decentralized blockchain Flux, told Blockworks. “However, most people in the crypto area are a bit numb to the tide of the conventional market; we have seen major changes ‘priced in’ to blockchain-based assets traded 24/7/365.”

Bitcoin and other cryptocurrencies, once seen as a hedge against inflation for their relatively uncorrelated trading patterns, are no longer the safe haven anyone once thought, Keller added.

In May, the correlation between bitcoin and technology-heavy Nasdaq 0.8 broke for the first time – bitcoin’s tandem trading for the S&P 500 also reached similar levels in early May. In June, the correlation between bitcoin and the S&P 500 fell to around 0.5, according to Coin Metrics data. A coefficient of one means that the corresponding assets are completely in line, while a negative-one reading signals the opposite.

“The reactionary pullback to interest rate hikes will continue to affect the emerging and disruptive technology sector going forward until the adoption curve has reached critical mass,” Keller said. “I also notice that this is the opportunity to enter new markets in a clear correction cycle. In the blockchain area, we live for these moments. “

In addition, Chris Kline, CEO of the Bitcoin IRA, pointed out that rising prices and inflation are affecting the labor market.

“One big thing people should probably look at is layoffs, and when they will come,” Kline said. “That’s my big question, because it has to happen. And it’s not just crypto, technology stocks are hitting this year. ”

If cryptocurrencies continue to correlate with technology stocks, the road to recovery will be long, according to Nicholas Colas, co-founder of Datatrek Research.

For Nasdaq to regain its November highs, the index must rise 41% from the end of Wednesday. For the S&P large-scale technology sector, which reached its peak in December, to return to a record high market value, it would necessitate a jump of 36%.

“When will US technology stocks return to the peaks in November / December 2021?” in Colas. “Exactly as long as it takes the S&P 500 to return to its heights, because technology … is such a large part of the S&P 500 (27% and 24%) that it’s hard to see that the two are very different. ”

Nevertheless, this also means that the technology should perform better during the next beef market, Colas added.

“The conclusion here is straightforward: When you think stocks have bottomed out, you should consider technology as a long-term overweight,” Colas said. “Growth is in short supply, even in an economic / market upturn, and technology is best positioned to deliver it.”

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