In less than 24 hours, the “relief rally” for cryptocurrencies following the Federal Reserve’s meeting has been erased, with bitcoin unable to crest its key $40,000 price point.
The slide in risk assets follows what analysts and traders anticipated Tuesday.
Mike McGlone, a commodities strategist with Bloomberg Intelligence called the intraday “relief rally” on Wednesday witnessed in cryptocurrencies and stocks “trader noise.”
“What happened yesterday was great for traders, but we should expect what has continued to happen for the past several weeks,” McGlone told Yahoo Finance. “That is, the Fed emboldened against inflation and risk assets going down.”
Tumbling more than 5% in the last 24 hours, bitcoin changed hands Thursday at a cheapening pace, falling between 9 and 11 a.m. New York Time from $39,500 to $36,900 per coin. Ether (ETH) sold off by 3.5% on the day from $2,939 to $2,752. The Nasdaq and S&P 500 are trading 5% and 3.7% lower, respectively.
Since January, Bitcoin has sold off 22.5% from $47,733, tracking losses nearly in sync with the Nasdaq Composite index (-22.1% YTD).
Currently, BTC holds its tightest 30-day correlation (.90) with the second largest cryptocurrency, ether (ETH), which has sold off 27% year-to-date from $3,767 to $2,755 as of noon Thursday.
While trading volume and real volatility spiked around the announcement with risk assets climbing after Fed Chairman Jerome Powell signaled a 75-basis-point increase wasn’t on the table, volume quickly retreated within 24 hours.
One reason is because near-term uncertainty still dominates a major swath of the institutional crypto investor mindset, according to Michael Saffai, a partner with crypto prop trading firm, Dexterity Capital.
Based on data from Coinbase’s analytics platform, Skew, implied volatility, a proxy for how willing investors are to buy BTC options, has fallen to its lowest level since early 2019 (3.1%). The indicator gauges how much option traders expect a near-term payout.
“There’s an ebb and flow to Bitcoin’s correlation with stocks, especially around these major macro events such as the Federal Open Market’s Committee meeting. It’s largely algorithmic trading,” said John Kramer, an institutional crypto trader with GSR.
Often a bellwether for the crypto market, Bitcoin’s correlation to the 30-day correlation to S&P 500 has been falling but remains in a 7-day range higher than it has been in 2022, based on data from Coinmetrics from Tuesday. Meanwhile, its connection to gold remains in reverse correlation but has tracked less so in recent weeks.
“Sentiment wise, it’s more important to see how the crypto market performs at the close of the equities market the day of through Friday,” Kramer added.
“From here on out, cryptocurrencies have the most to lose,” Bloomberg’s McGlone added, going on to say, “Despite that, Bitcoin is showing divergent strength for being well known as a volatile asset. Eventually, it and ether should come out ahead, just not overnight.”
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.