Cryptocurrencies lost momentum on Thursday, tumbling sharply after the outcome of the Federal Reserve’s Wednesday Open Markets Committee meeting gave digital coins a fleeting boost.
After briefly appearing to decouple from risk-sensitive stocks, Bitcoin (BTC-USD), Ethereum (ETH-USD) and its crypto cohorts ended Wednesday's whipsaw session in the red, along with Wall Street. The reversal signaled the correlation with equities was not likely to end anytime soon, especially with the Fed poised to hike interest rates as early as March.
The leading crypto units were down by at least 3% in early dealings, with Bitcoin changing hands below $37,000 — not far from the week's spike low around $33,250. Investors are struggling to reprice digital coins in the face of fiscal and monetary policy that will be "less supportive of growth this year," as Fed Chairman Jerome Powell noted on Wednesday.
"Crypto prices the past few months, along with growth stocks, bear the brunt of the market bleeding," CoinShares CEO Jean-Marie Mognetti told Yahoo Finance Live on Wednesday. He cited the uncertainty surrounding the Fed's next moves as weighing on the sector.
The coming monetary tightening cycle is scrambling the outlook for crypto assets that benefit from loose monetary policy and lavish federal government spending. The market's pivot to risk aversion will continue to drive crypto prices in the near-term, according to Mikkel Morch, executive director & risk management of crypto asset hedge fund ARK36.
Smaller cryptocurrencies that fuel layer-1 smart contract blockchains such as Solana (SOL1-USD), Terra (LUNA1-USD), Polkadot (DOT-USD) and Avalanche (AVAX-USD) were all down by at least 5%, normal for this class of assets as they sit higher up on a typical investor’s risk curve.
“While Powell did indeed sound dovish at the beginning of the press conference, it seems that he failed to offer enough reassurance to really turn the tide of the bearish sentiment that has gripped the markets since last week,” Morch told Yahoo Finance.
Crypto derivatives were sending a marginally bullish signal, with the 8-hour funding rate staying positive, according to derivatives platform, Coinglass. That means a slim majority of speculators expect a bullish short-term outcome.
Yet Bitcoin's collapse since hitting a record high in November above $68,000 tells the real story. Meanwhile, a new Bitcoin futures-based exchange traded funds (ETFs), ProShares' BITO, has plunged by 46% since its peak on November 9. It changed hands around $23 per share in early Thursday dealings.
Brett Harrison, president of the cryptocurrency exchange, FTX.US — which closed a $400 million capital raise this week — told Yahoo Finance that crypto volatility is "par for the course." But he cited that a steady flow of venture capital funding and talent can act as a leading indicator for the sector's growth dynamic, which remains intact.
"As long as there's a continued intellectual migration from finance and computer jobs into crypto jobs, and vc money pouring in, people will want to build," Harrison said. "They'll build value, and that will make it back to the markets eventually."
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.