Cryptocurrencies haven't been able to catch a break in recent weeks despite the advancement of many projects. In late 2021 and early this year there has been a boom in crypto related projects. Play to Earn (P2E), NFTs, DeFI, Metaverse have all exploded in popularity. However, crypto and stock markets have buckled in the face of higher interest rates.
The adoption story is a double edged sword as I believe stocks and crypto are set to move in even closer lock-step. Institutional and retail investors are both worried as the Federal Reserve brings two years of cheap cash and ultra-loose monetary policy to an end. Right now the fed is trying to thread the needle by raising rates without endangering economy. Only once before now has the fed faced a moment when it needed to raise interest rates from near zero to meet the threat of rising prices (inflation). In 2015, the Fed began lifting rates when consumer prices were increasing by a barely perceptible 0.5% annually and now they are looking to attack today’s 7% which is the highest since 1982.
In investing, everything is a risk curve. It's not something that's talked about among early adopters of crypto, but every single part of the investable universe is part of that risk curve. Sometimes it's correlated, sometimes it's not like in the early days when many crypto investors were developing the tech and saw it as a movement not just another investment vehicle. We are seeing a macro shift and those shifts are were everything gets a correlation of 1 as money moves regardless of the underlying asset. Just looks at how stock indexes moves and now major crypto moves in lock steps. The charts at a high level look identical.
periodically decouples depending, but right now BTC trades like US blue-chip stocks. The crypto market trades with BTC so there is the problem. US blue-chip stocks have been on a near-unbroken downtrend so far in January, with the S&P 500 down around 9%, while the tech-heavy Nasdaq 100 has fared far worse, with a decline of 13%. Bitcoin has lost about a fifth of its value so far in January, to trade around $35,000.
I have always believed that crypto should trade on the underlying tech and possibility of the project. We are not there yet. Crypto is being lumped in as a risk asset that can be used to 'diversify' one's portfolio which means it will be sold as people rotate sectors as traditional schools of thought has taught investors to do since the dawn of the stock market.