Bitcoin continued to see red Friday as cryptocurrencies were dragged down by a stock market selloff that saw the Dow Jones Industrial Average lose over 1,000 points in the previous session.
Bitcoin was down nearly 9% to $36,075 at last check on Friday, according to CoinGecko, while ethereum was off nearly 7.7% to $2,706.17 and dogecoin was down 5.4% to $0.127099.
Earlier, the king of cryptocurrencies fell to $35,486.
Stocks were also still dropping, with the Dow off 425 points Friday morning.
“The correlation between cryptocurrency and equities has been discussed fairly extensively after bitcoin and the tech-heavy Nasdaq 100 displayed a higher positive correlation than was initially expected,” said Tammy Da Costa, analyst at DailyFX. “Over the past week, fundamentals have included interest rate expectations and nobody can ignore the ongoing war which continues to place pressure on supply constraints, particularly for commodities.”
The Federal Reserve on Wednesday lifted its Fed Funds rate by 50 basis points, to a range of 0.75% to 1%, its largest rate hike in more than two decades.
The central bank also confirmed plans to reduce its $8.9 trillion balance sheet, with $47.5 billion in sales starting on June 1 with a cap its monthly asset sales at $95 billion, comprised of $60 billion in Treasury bonds and $35 billion in mortgage bonds.
Although bitcoin, ether, and the “older” crypto’s have appeared fairly susceptible to these issues thus far, Da Costa said she believes “that interest rate hikes are likely to jeopardize the short-term potential for profits.”
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“It is important to realize that predictions/ economic forecasts prior to the war were made under the assumptions that once interest rates rose, everything else would fall into what we call ‘equilibrium’, where supply and demand meet,” Da Costa said.
“However,” she added, “now that market participants are perceived to be more reluctant to adopt the additional risk associated with the crypto sphere–i.e.: non-dividend yielding income–cryptocurrency has experienced a slight depreciation which I believe is perceived to be ‘normal’ in these conditions.”
‘New Highs Will Come’
Da Costa said she believes that “the future of individual coins or tokens remains dubious, the law remains in control of such solicitations and the approval of social media giants such as Elon Musk.” Musk, CEO of Tesla (TSLA) – Get Tesla Inc Report, is acquiring Twitter (TWTR) – Get Twitter, Inc. Report.
“But, when interest rates are rising and both equities and non-related dividend investments fall, she said, “the probability of profiting from those same investments that surged throughout the pandemic or at least the speculative surge in investments appreciates.”
“Now, we see alt coins such as Solana, Dogecoin, and NFTs that are fighting to gain the favor of investors,” she said. “Although cryptos are still relatively new, the blockchain of both individual and collective tokens remain as both an intuitive and technological development which will likely increase the potential for digital assets to secure their place in the future of finance.”
Bitcoin supporters continued to show their loyalty on social media.
“I remember buying #bitcoin under 20k through the dark and lonely #crypto winter. Sooooo many people told me BTC would never reach new highs. My belief never wavered,” crypto investor and analyst Lark Davis tweeted. “I am buying now, and will continue while prices are down here. New highs will come. I am patient.”
“If you are worried about #bitcoin prices, it is because you don’t understand bitcoin yet,” one commenter said. “Lower prices are a blessing and makes it easier to stack sats. Stack as much until QE infinity.”