May27 , 2022

Bitcoin Drops The Most In Almost A Month As Fed Optimism Fades; Ether Slumps 7.2%

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Bitcoin, the world’s largest cryptocurrency, dropped the most in almost a month after the Bank of England flagged a possible recession and double-digit inflation.

The largest digital currency fell as much as 8.4% to $36,639, the biggest intraday drop since 11 April. It had gained 5.3% on Wednesday.

Ethereum, the next largest token, also slumped as much as 7.2%. Avalanche and Solana, among some of the largest gainers after the US central bank raised rates Wednesday, were down as much as 11% and 7.3%, respectively.

The global crypto market cap is $1.69 trillion, a 3.90% decrease over the last day.

Meanwhile, on Wall Street, the Dow Jones Industrial Average fell 2.63%, the S&P 500 lost 3.09% and the Nasdaq Composite dropped 4.32%.

Britain’s pound and government bond yields fell sharply after the BoE raised rates to their highest since 2009 and warned the UK economy was at risk of recession.

Sterling was last at $1.2352, down 2.13% on the day, while the euro was down 1.01% to $1.0514 after dire German industrial orders data.

“The market still needs to digest the impact of tighter monetary policy on all risk assets and crypto might take a hit as correlations” with US stocks increase, said Josh Lim, head of derivatives of New York-based brokerage Genesis Global Trading.

The US central bank’s policy-making Federal Open Market Committee voted unanimously to increase the benchmark rate by a half percentage point and said it will begin allowing its holdings of Treasuries and mortgage-backed securities to roll off in June. 

Risky assets surged after Fed Chair Jerome Powell said a 75-basis point increase is “not something that the committee is actively considering.”

Still, in this higher-rate environment, Bitcoin hasn’t been able to break out in any meaningful way beyond its highs at the start of the year. The coin has largely traded within a tight range over the past few months.

The “technical picture in BTC remains poor, in spite of a less hawkish Powell, BTC failed to regain 40,000, hence this pull back” said Teong Hng, chief executive of Hong Kong-based crypto investment firm Satori Research. “As equity markets in US reversing yesterday’s gains, crypto follows suit.”

Money has been flowing out of the sector amid the malaise. Investors yanked roughly $120 million from crypto products last week, bringing total outflows over the past four weeks to $339 million, as per data tracked by fund provider CoinShares. 

Last week, Bitcoin accounted for the majority of the flows in what was its largest single week of outflows since June last year.

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