and other cryptocurrencies were weaker Friday as digital assets continued to trade in a fairly tight range, with market participants looking ahead to next week’s meeting of the Federal Reserve as a point of uncertainty.
The price of Bitcoin fell more than 2% over the past 24 hours to below $39,000. The leading crypto continues to trade in a relatively tight range around $40,000 level but remains volatile, falling as low as $38,000 in recent days and changing hands $43,000 a week ago.
“Price volatility in the bitcoin market over the last few weeks can be attributed largely to its correlation to other risk assets,” said Joe Haggenmiller, the head of markets at crypto trading firm XBTO Group. “Despite growing uncertainty in all risk-on asset markets, however, bitcoin has recently held relatively steady within the $38,000 to 41,000 range.”
Bitcoin and other digital assets should in theory trade independently of mainstream financial markets, but they have proved correlated with other risk-sensitive assets like stocks, especially technology stocks. The tech-heavy
index has had a rough 2022 so far, and was poised to close out its worst four-month start to a year since 1973 on Friday.
“Macro uncertainty has driven all risk-on assets downwards over the last few months, including bitcoin,” Haggenmiller said, “in reaction to conflict in Ukraine, supply chain issues due to rising Covid-19 cases in China, and ongoing interest rate hikes and future balance sheet machinations by the Federal Reserve.”
Bitcoin’s smaller peer,
was also lower. The token underpinning the Ethereum blockchain network fell 2.5% to below $2,900; it was trading as high as $3,150 last Thursday.
Smaller cryptos, or “altcoins,” were even further in the red.
lost 7% while
both retreated 4%. “Memecoins”— called that because they were initially intended as internet jokes rather than significant blockchain projects— were also down, as
lost 4% and
Monetary policy from the U.S. central bank is looming large in the crypto world as well as the stock market. The Federal Open Market Committee, the Fed’s monetary policy group, meets next week and is expected to raise interest rates by a sizable half-point.
Interest rate increases as well as expectations that the Fed will reduce its bond holdings will raise the cost of borrowing, denting economic demand and causing bond yields to rise. When bond yields climb, investors are faced with math that proves tough for riskier assets like stocks and cryptos: Higher yields reduce the extra return relative to bonds that traders expect to get from taking riskier bets.
“An increase higher than 50 basis points, deviating from the current consensus, may lead to a drop in risk markets including bitcoin,” Haggenmiller said. It’s likely that any sign from Fed Chair Jerome Powell that the central bank will move more aggressively to tighten monetary policy that markets had expected could cause a selloff next week.
Write to Jack Denton at [email protected]