- Dropping by over 10% to as low as US$35,600 at one point, Bitcoin erased its previous day gain of over 5%, taking other cryptocurrencies along with it.
- Not helping matters, Bitcoin has become increasingly correlated with U.S. equities, possibly because of increasing U.S. institutional presence in markets that trade Bitcoin.
In a market that is devoid of confidence, investors would not expect to find a haven in cryptocurrencies, so it’s no surprise then that Bitcoin has tumbled the most since January as the rout in equities and bonds deepens over recession fears.
Dropping by over 10% to as low as US$35,600 at one point, Bitcoin erased its previous day gain of over 5%, taking other cryptocurrencies along with it.
One theory is that traders are wary the U.S. Federal Reserve’s tightening schedule will tip the economy into a recession, but if so, that fear does not square with the market’s initial reaction to the central bank’s rate-setting meeting on Wednesday.
Initially, markets responded to the Fed’s 0.50% rate hike with a sharp rally, especially since policymakers suggested the next two meetings would see similar rate rises and a move away from any prospect of jumbo hikes.
Yet somehow on Thursday, traders woke up to decide that the Fed would not be achieving anything close to a soft landing and fears of recession are being bandied about.
But given that Bitcoin has been unable to break out of its tight trading band in a meaningful way, investor fatigue has taken over at a time when confidence is in short supply.
Not helping matters, Bitcoin has become increasingly correlated with U.S. equities, possibly because of the increasing U.S. institutional presence in markets that trade Bitcoin.
Given that there’s nothing to be bullish about in the immediate future when it comes to Bitcoin, some investors are understandably taking money off the table.
Many institutional and professional investors recognize that this is an asset class that they can’t ignore, but at the same time, there’s no need to try and call the lowest low or the highest high and understandably they would want to sit it out until things are clearer.
On the flipside, blockchain data suggests that the amount of Bitcoin being siphoned off to cold wallets has increased, suggesting that most investors have turned to long-term holders and are neither in a rush to buy or sell.
For now, most of the trading activity in Bitcoin is amongst those who don’t want to take a long-term view one way or the other, which has (so far) prevented a capitulation for Bitcoin below US$35,000 but is also why it’s hard for the cryptocurrency to break out above US$40,000.
There’s simply too much uncertainty in the market right now that it’s completely understandable if investors just want to cling on to cash.
