October 1, 2022

Cryptocurrencies were under pressure on Wednesday after the Federal Reserve raised interest rates once again and warned economic pain from the tightening of the aggressive policy that is yet to come.

Bitcoin, the largest token, fell as much as 4% and came perilously close to dipping below $18,000, within touching distance of levels last seen in 2020. The second-largest coin, ether, continued to weaken, falling to 7.2 %.

The Fed’s determination to raise rates to inflation-stripping levels at the cost of sliding asset prices sent chills across global markets. Shorter maturities Treasury yields jumped, while longer-term rates fell, deepening the inversion of the bond curve seen as a harbinger of recession.

Such a backdrop offers some respite for the crypto markets. They have already been reeling from a $2 trillion drop from a record high in 2021, the unraveling of a fraught surge such as hedge fund Three Arrows Capital and the Terraform Labs project — whose co-founder, Do Kwon, is wanted by authorities.

“If the Fed continues to tighten, unless it implements yield curve controls to keep the curve positively sloping, the crypto system will experience many more failures,” said Brian Pellegrini, founder of Intertemporal Economics. “Eventually there will be a few very rich champions, but in the meantime there will be blood in the streets.”

The MVIS CryptoCompare Digital Assets 100 Index is down this week, bringing its losses for 2022 to around 62% compared to 22% for global stocks. The correlation between stocks and bitcoin is elevated and near record highs, a sign that the funds are being scattered by common macro factors.

CEO of JPMorgan Chase & Co. Jamie Dimon didn’t help sentiment in the digital asset markets by confirming his skepticism and calling tokens “decentralized Ponzi schemes”.

Bitcoin was around $18,670 at 9:50 PM in Los Angeles. Ether traded around $1,260 and continues to take further hits as the earlier rally that fueled hype around its ethereum network upgrade unwinds. Coins like salt pan and avalanche were also in the red.

Some traders may look to measures like 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 to be few and far between for riskier assets after the Fed’s hawkish performance.

— Bloomberg writer Carly Wanna contributed to this report.

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