Cryptocurrencies were under pressure Thursday as investors grappled with renewed concerns about the U.S. economy.
Bitcoin was last lower by about 2% at $28,506.00, according to Coin Metrics. The slide began after the minutes of the Federal Reserve’s July policy meeting were released. Late Wednesday bitcoin dropped as low as $28.335.42, its weakest since late June.
The central bank minutes from the July meeting cautioned that Fed officials see “upside risks” to inflation that could potentially lead to more rate hikes. At that meeting, Fed raised its benchmark interest rate to the highest in more than 22 years. Markets have been betting the central bank wouldn’t make any more moves on interest rates this year. In reaction, the stock market fell for a second straight day Wednesday and the 10-year U.S. Treasury yield hit its highest close since 2008.
Bitcoin’s correlation with stocks is at its lowest level in two years, according to Coin Metrics, but in 2022 it shot to an all-time high in response to the Fed’s rate-hiking campaign to tame inflation.
“Although inflation in itself could be an argument for growth in crypto assets, with inflation comes other aspects like risk off appetite from investors fearing a recession, and avoiding what bitcoin is deemed to be, riskier assets,” said Sylvia Jablonski, chief investment officer at Defiance ETFs. “My suspicion is that the higher beta equities and crypto are the victims of the end of summer lag, range-bound trading, no volume, which is typical in August – with the hawkish Fed as the cherry on top to keep investors to the side and prices in this tight range.”
Bitcoin and ether’s 90-day volatility dropped to multi-year lows at 35% and 37% this week, respectively, according to Kaiko.
Needham’s John Todaro added that bitcoin’s move back to $30,000 in late June “had been on light volume so that rally has not had a ton of strength.” The eventual debut of a spot bitcoin ETF, one of crypto’s biggest positive catalysts, also lost some steam this week, he added.
“With a U.S. [spot bitcoin] ETF likely not seeing a near term decision given the setback this week as well as expectations for higher rates for longer, bitcoin and crypto broadly are pulling back,” he told CNBC. “Remaining catalysts are Halving expectations in Q1-Q2 ’24 and any on-going ETF related comments from the SEC.”