A rally in beaten-down cryptocurrencies stumbled Thursday on the prospect of a sustained campaign of Federal Reserve interest-rate hikes that will likely suck liquidity from global markets.
verything from Bitcoin to smaller and sometimes lesser-known tokens – so-called altcoins – gave up the bulk of earlier gains. A prolonged selloff has led to a drop of more than $1 trillion in crypto market value this year.
Bitcoin, which earlier added as much as 6.1%, trimmed the advance to 1.5pc by 6:50 a.m. in London and was trading at about $21,940. Ether — which at one point added 6.6pc to $1,256 — was little changed. Cardano, Solana and Dogecoin ranged from flat to up 6pc.
Today was a “short-term crypto bear market rally,” said Eric Schiffer, chief executive officer of the private equity fund Patriarch Organization in Beverly Hills, California. “This bear market won’t go away until the Fed decides that it’s going to soften, which I expect at the end of third quarter.”
Crypto markets have served up gut-wrenching losses over the past month, but many have welcomed the wring-out of excesses and sky-high speculation.
“The reality is we need to see capitulation where that ‘noobishness’ gets washed out,” said Max Gokhman, chief investment officer for AlphaTrAI, adding that “we need to see the asset class evolve to a more mature state, and I think it’s in the process of doing that.”
Crypto started sliding late last year on expectations of a less accommodative Fed, with rising interest rates hurting the industry and its prospects.
Last month’s collapse of the Terra blockchain and the recent decision by crypto lender Celsius Network Ltd. to halt withdrawals have also taken a toll, while a tweet this week from the co-founder of crypto hedge fund Three Arrows Capital fueled speculation that it had suffered large losses.
Even long-term holders who have avoided selling until now are coming under pressure, according to researcher Glassnode.
“Crypto is a risk asset. It’s an expression of people taking where they are on the risk spectrum, whether they’re playing more risk-averse or if they’re playing more risk-seeking,” Anna Han of Wells Fargo Securities LLC said in an interview.
The Fed raised rates by 75 basis points Wednesday, stepping up the fight against inflation. Powell signaled another big hike in July but added “today’s 75 basis-point increase is an unusually large one and I do not expect moves of this size to be common.”
Leaning against the risk of a string of jumbo moves initially becalmed global markets, before gloom over elevated price pressures and slowing economic growth again closed in.
All sorts of pockets in crypto have been beset by negative developments. A number of crypto firms have announced layoffs and hiring freezes, and many market-watchers are expecting further price declines ahead.
Michael Purves, founder and CEO of Tallbacken Capital, sees that risk for Bitcoin. “We continue to think that Bitcoin’s broader picture is bearish, and perhaps our $15k target is not bearish enough,” he wrote in a note. “Nonetheless, for the near term, we recommend taking profits on short positions.”