Bitcoin, crypto stumble as post-Fed relief rally fizzles

NEW YORK (BLOOMBERG) - A rally in beaten-down cryptocurrencies stumbled on Thursday (June 16) on the prospect of a sustained campaign of Federal Reserve interest-rate hikes that will likely suck liquidity from global markets.

Everything from Bitcoin to smaller and sometimes lesser-known tokens - so-called altcoins - gave up the bulk of earlier gains. A prolonged sell-off has led to a drop of more than US$1 trillion (S$1.39 trillion) in crypto market value this year. 

Bitcoin, which earlier added as much as 6.1 per cent, trimmed the advance to 1.5 per cent by 6.50am in London and was trading at about US$21,940. Ether - which at one point added 6.6 per cent to US$1,256 - was little changed. Cardano, Solana and Dogecoin ranged from flat to up 6 per cent.

Today was a “short-term crypto bear market rally”, said Mr Eric Schiffer, chief executive officer of the private equity fund Patriarch Organisation. “This bear market won’t go away until the Fed decides that it is 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 Mr 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 is 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 to halt withdrawals have also taken a toll, while a tweet this week from the co-founder of crypto hedge fund Three Arrows Capital fuelled speculation that it had suffered large losses. 

Even long-term holders who have avoided selling until now are coming under pressure, according to blockchain data provider Glassnode.

“Crypto is a risk asset. It is an expression of people taking where they are on the risk spectrum, whether they are playing more risk-averse or if they are playing more risk-seeking,” Ms Anna Han of Wells Fargo Securities said in an interview. 

The Fed raised rates by 75 basis points on Wednesday, stepping up the fight against inflation. Mr Powell signalled 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. 

Mr 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 US$15,000 target is not bearish enough,” he wrote in a note. “Nonetheless, for the near term, we recommend taking profits on short positions.”