Crypto Winter and the Fed?

Crypto markets declined across the board Thursday, ending a period of relative calm after the new year and sending a chilling reminder that new lows are still very much in play. Some have drawn attention to the Federal Reserve’s influence on the stock market as a possible explanation for the recent slide in cryptoassets. While this view might not stand up to scrutiny, it raises important questions about the interplay between crypto and traditional assets among institutional investors.

Market Update

Bitcoin and the major altcoins fell between 9% and 16% on Thursday, extending an overnight slump that first began with BTC. The leading digital currency dropped 5% in the span of an hour, triggering a panic sale across the altcoin and token universe. Bearish pressures picked up again late morning, which resulted in the most recent low.

The bitcoin price is currently valued at $3,668, where it was down 9.1%. Daily trade volumes spiked above $6.5 billion as the selloff intensified.

XRP has recovered nearly 1% over the last hour but is still down 9.8% on the day. It was last seen hovering just north of $0.33, having reclaimed second spot in the market-cap rankings. Ethereum slipped to no. 3 after falling 15.6%. Ether is currently valued at $127.48. More on this story can be found here: After Doubling in Price, Ethereum Faces Inevitable Correction Ahead of Big Upgrade.

Bitcoin cash is on track for a miserable session, falling 16% to $133.95. EOS was down 15.5% to $2.40 while Stellar XLM shaved 12% from its value to reach $0.1079.

Tron managed to avoid the early selloff but has since fallen with the rest of the market. TRX is currently down 13.1% at $0.0250.

With the exception of stablecoins Tether and USD Coin, no cryptocurrency in the top-20 was in the green. Very few projects in the top-100 saw positive results.

The total market capitalization of cryptocurrencies fell to $122 billion after peaking near $139 billion on Wednesday. The market’s most definitive bottom was reached last month, when total coin values fell to $100.4 billion.

Factors Behind the Drop

Aside from bitcoin’s gravitational influence on altcoins and tokens, there were no apparent fundamental catalyst for the sudden correction on Thursday. Bitcoin quickly lost the $4,000 price floor overnight, paving the way for Ethereum to give back a big chunk of its explosive monthly gains. Ether was overbought at the beginning of the month before entering a brief period of consolidation this week.

CCN has drawn attention to the Federal Reserve as a possible reason for the loss of interest in cryptocurrency and the sharp pivot back to stocks. A parade of Fed officials in recent days have indicated reluctance to raise interest rates following the stock market’s dramatic collapse last month.

Traders have picked up on these clues and have lowered their outlook on Fed hikes this year – that is, according to the Fed Fund futures prices. The consensus among traders seems to be that the Fed will hold off on raising interest rates throughout 2019 and could even lower them before another hike is considered. This has played into the hands of Wall Street, which has staged a massive corrective rally since Christmas. Case in point: the major indexes are up at least 10% over that stretch.

While stocks and cryptocurrency remain largely uncorrelated, institutional traders appear keen on dabbling in traditional assets following the Fed’s latest signal. Or it could be that the dollar’s bullish outlook and increased reliance on gold as a safe haven have relegated bitcoin to the sidelines for now. It remains to be seen whether that trend continues in the face of global economic pressures and a lukewarm earnings season.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi