Bitcoin Erases Drop Sparked by US Fed's Warning of Rate-Hike Pain
Cryptocurrencies fought off declines triggered by another large Federal Reserve interest-rate hike, though sentiment remained cautious given the central bank's warning of economic pain ahead from tightening policy.
Bitcoin, the largest token, was about 1.2% higher as of 10:50 a.m. in London on Thursday after earlier sliding as much as 4% toward levels last seen in 2020. Second-biggest coin Ether continued to underperform, shedding 2%.
Markets are shuddering at the Fed's determination to fight inflation by constricting financial conditions. Shorter maturity Treasury yields jumped more than longer tenor rates, deepening a bond curve inversion seen as a signal of recession. A dollar gauge was at a record as investors sought a bolthole.
Such a backdrop offers little respite for crypto markets. They were already reeling from a $2 trillion plunge from a 2021 record high, an unraveling pockmarked with blowups such as the Three Arrows Capital hedge fund and the Terraform Labs project -- whose co-founder Do Kwon is wanted by authorities.
“If the Fed keeps tightening, unless it implements yield curve control to keep the curve positively sloped, the crypto system will see a lot 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 about 60% compared with 23% for global stocks. The correlation between equities and Bitcoin is elevated and close to a record, a sign of how assets are being tossed around by common macro factors.
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