Crypto crash continues; why has bitcoin fallen 55% over the past 6 months?

Some analysts attributed the tank to macroeconomic uncertainty. Investors have been selling off risky assets, as inflation rises at the fastest pace in 40 years, U.S. economic growth slows and the Federal Reserve tightens its monetary policy, while the Russia-Ukraine war and supply issues persist.

Though some bitcoin supporters touted it as a storage of value and a hedge against inflation, it has been trading like a risk asset for the past few months. 

“The type of market participants that have stepped in over the last few years are largely these macro-trading traditional funds. 

They are trading bitcoins the way that they trade tech stocks, although a lot of aspects of bitcoin are inherently viewed as risk-off by crypto-native people,” Will Clemente, lead insights analyst at bitcoin mining company Blockware Solutions, told MarketWatch in an interview. 

“Bitcoin’s correlation to traditional markets has just kind of been in the driver’s seat lately,” Clemente added. The 30-day rolling correlation between bitcoin and the tech-focused Nasdaq 100 NDX, -3.98% hit an all-time high of about 0.8 on Monday, according to crypto data provider Kaiko Research.

The market currently views both bitcoin and the Nasdaq as “long duration, interest-rate-sensitive risky assets,” Brent Donnelly, president of Spectra Markets wrote in Monday notes. 

“If the Fed is pouring gasoline on markets in the form of quantitative easing, that’s bullish. If they are hosing down the fire as they transition from arsonist to firefighter, that’s bearish,” Donnelly wrote. 

Since March, the Fed has been holding its balance sheet steady at nearly $9 trillion by reinvesting proceeds of maturing securities. 

The central bank said last Wednesday that it will reduce the size of its balance sheet by $47.5 billion a month for three months starting in June and ramping up to $95 billion a month starting in September.

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