Bitcoin, Ether drop as Fed warning of rate hike pain hits crypto

Bitcoin fell as much as 4 per cent while Ether continued to underperform, shedding up to 7.2 per cent. PHOTO: REUTERS

BANGKOK - Cryptocurrencies came under pressure on Thursday after the Federal Reserve delivered another big interest rate hike and warned of economic pain from the aggressive policy tightening still to come.

Bitcoin, the largest token, fell as much as 4 per cent and came perilously close to dropping below US$18,000, in touching distance of levels last seen in 2020. Second-biggest coin Ether continued to underperform, shedding up to 7.2 per cent.

The Fed's determination to raise rates to levels that hammer inflation at the cost of sliding asset prices sent a chill across global markets. Shorter-maturity Treasury yields jumped, while longer tenor rates fell, deepening a bond curve inversion seen as a harbinger of recession.

Such a backdrop offers little respite for crypto markets. They were already reeling from a US$2 trillion (S$2.8 trillion) plunge from a 2021 record high, an unravelling pockmarked with blow-ups such as the Three Arrows Capital hedge fund and the Terraform Labs project - whose co-founder Do Kwon is wanted by the authorities.

"If the Fed keeps tightening, unless it implements yield curve control to keep the curve positively sloped, the crypto system will see a lot more failures," said Mr Brian Pellegrini, founder of Intertemporal Economics. "At the end, a few very rich champions will emerge, but in the meantime, there will be blood in the streets."

The MVIS CryptoCompare Digital Assets 100 Index is down this week, taking its losses for 2022 to about 62 per cent compared with 22 per cent for global stocks. The correlation between equities and Bitcoin is elevated and close to a record, a sign of how assets are being tossed around by common macro factors.

'Ponzi schemes'

JPMorgan Chase chief executive officer Jamie Dimon did not help the mood in digital asset markets by reaffirming his scepticism and calling tokens "decentralised Ponzi schemes".

Bitcoin was at about US$18,500 as at 7.45am in Singapore. Ether was around US$1,250 and continues to take an additional hit as an earlier rally sparked by hype around the upgrade of its Ethereum network unwinds. Coins like Solana and Avalanche were also in the red.

Some traders might look to measures like Bitcoin's 14-day relative strength index for affirmation that a bounce is possible. The Relative Strength Index, a momentum gauge, is close to oversold levels. But contrarian bets appeared few and far between for riskier assets following the Fed's pugnacious performance. BLOOMBERG

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