Cryptocurrencies came under pressure Wednesday after the Federal Reserve delivered another big interest rate hike and warned of economic pain from the aggressive policy tightening still to come.
Bitcoin, the largest token, fell as much as 4% and came perilously close to dropping below $18,000, in touching distance of levels last seen in 2020. The second-biggest coin, ether, continued to underperform, shedding up to 7.2%.
The Fed’s determination to raise rates to levels that hammer inflation at the cost of asset prices sent a chill across global markets. Shorter-maturity Treasury yields jumped while longer-term rates fell, deepening a bond curve inversion seen as a harbinger of recession.
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 62% compared with 22% 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.
JPMorgan Chase & Co. Chief Executive Jamie Dimon didn’t help the mood in digital asset markets by reaffirming his skepticism and calling tokens “decentralized Ponzi schemes.”
Bitcoin was about $18,670 as of 9:50 p.m. in Los Angeles. Ether was around $1,260 and continues to take an additional hit as an earlier rally sparked by hype around the upgrade of its ethereum network unwinds. Coins such as solana and avalanche were also in the red.
Some traders might look to measures like bitcoin’s 14-day relative strength index for affirmation that a bounce is possible. The RSI, a momentum gauge, is close to oversold levels. But contrarian bets appeared few and far between for riskier assets after the Fed’s rate action.
Bloomberg writer Carly Wanna contributed to this report.