Bitcoin Drops To $38,000 – More Pain Ahead?

Crypto markets collapsed after a global sell-off in risk assets and as Russia’s proposed a ban on all cryptos.

Bitcoin fell 9% to $38,500, breaking key support at $40,000, as global markets saw a 1% decline.

Other major cryptos fell as well. Ethereum dropped by almost 12% to $2,793. Binance’s native coin BNB dropped 10%. Smart contract blockchain Cardano lost 13%, dropping to $1.19, while Solana dropped by 15%, to $117.

Almost all the major cryptos were in the red, dropping as much as 15%. The total crypto market cap dropped by almost 10%, to $1.79 trillion. Markets saw some $200 billion in crypto value lost in the last 24 hours.

Crypto collapse comes as investors dumped tech stocks, which fall into the category of risk assets.

The selling only accelerated after tech company Netflix warned about dropping subscriber numbers. The streaming company led the tech drop, falling by almost 20%.

This caused a broader drop in the markets, as investors worried that the Fed’s removal of stimulus would collapse stocks. Tighter monetary policy is especially a problem for risk assets, like tech stocks and crypto.

News from Russia also contributed to the crypto selloff. Russia’s central bank proposed a ban on mining and the use of cryptos in the country. Russia cited threats to financial stability, security of investors and monetary sovereignty.

The country has banned all public officials from holding crypto back in January 2021. Earlier, authorities argued that criminals and terrorists could use crypto for illegal means.

Russia is the third-largest country by BTC hash rate, after the U.S. and Kazakhstan. This comes after a European regulator proposed a ban on all crypto mining in the EU.

Crypto And Interest Rates

Crypto assets are now seeing an outflow of investors that used cheap money to invest in speculative crypto projects. Now that they expect interest rates to go up, most are leaving the space. This, in turn, is weighing on the prices.

This is causing concern that cryptos are now too much tied together with stocks. The 90-day correlation between the S&P 500 and Bitcoin rose to the highest level since October 2020.

In particular, it could be that crypto relies too much on cheap money from the Fed. Cheap money might have fuelled speculation in the crypto space.

In fact, a Bloomberg analyst warned that anyone holding crypto right now is betting against the Fed. Mike McGlone said on Tuesday that fighting the Fed is not a good idea.

The number one theme I’ve been using for months now is do not fight the Fed. If you’re long risk assets, you are fighting the Fed, and cryptos are the riskiest assets.

Most investors agree that the Fed is not bluffing on rate hikes. In fact, Wall Street is pricing in 5 rate hikes this year.

With rising rates, there won’t be that much cheap money for investors to dump into stocks or crypto.

Moreover, rising interest rates may help curb inflation. That would remove another reason why some people hold crypto – as an inflation hedge.

Gold And Crypto Investors Not Buying It

However, not everyone agrees. Gold and crypto investors have not always seen eye to eye. Still, they agree on one thing – inflation will continue to be a problem. Both gold and crypto investors believe that the economy is far from being in recovery territory.

Gold investor (and notorious crypto critic) Peter Schiff points out that the economy is not as strong as most claim.

Paper profits are disappearing fast. #Peloton is down over 85% from last year’s high. How many people who had huge paper gains in $PTON are still ahead? #Netflix is tanking after hours. It’s now 35% below its record high set just two months ago. This can get very ugly, very fast!

For example, the index of Consumer Sentiment dropped 2.5% to 68.8, worse than expected. That’s the second-worst reading in ten years. What’s even worse is that the worst reading in 10 years was just two months ago.

In his view, if the Fed cuts rates now, they might trigger a recession. That’s something that they don’t want to do. Rather, he thinks that, if push comes to shove, the Fed will keep rates low.

Crypto investor and Nexo co-founder Antoni Trenchev agrees with that statement. In a recent interview, he said that the Fed has no political will to cut rates.

I think that as soon as we see an interest rate hike, we will see a dip into the equities and the bond market. Quite frankly, in the last few years, we haven’t seen much political will to power through any sort of correction in the traditional markets.

Bitcoin live price
price change

Whether or not gold and crypto investors are right, it is unlikely that markets will vindicate them that quickly. That is, not until the Fed either goes forward or starts delaying rate hikes this year.

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