Cryptocurrencies fell Tuesday, dragging down Bitcoin in line with US stocks as investors prepare for expected rate hikes from the Federal Reserve this week.
The largest digital token sank as much as 4% to $18,740. The coin on Monday fell to $18,273, its lowest value since prices tumbled after the collapse of crypto lender Celsius in June. Also on Tuesday, Ether slid as much as 2% to $1,330. Coins like Cardano and Avalanche fell even more.
The drop aligns with a selloff in US stocks, which cryptocurrencies have been moving in tandem with all year. A 60-day correlation coefficient for Bitcoin and contracts on the S&P 500 grew to 0.72, just short of a May record. (A coefficient of 1 means the assets are moving in lockstep, while minus-1 would show they’re moving in opposite directions.)
“Right now, it is very much a proxy for beta in the market,” John Porter, CIO and head of equities at Newton Investment Management, said of Bitcoin. “Crypto’s going through growing pains right now. We just don’t know what it’s going to be when it grows up, if you will.”
Interest in digital assets has waned in recent weeks. Investors are bracing for volatility from the jumbo Federal Reserve interest-rate hike expected Wednesday to fight sticky price pressures. Higher borrowing costs are sapping the liquidity that the crypto sector relies on.
“It’s trading like a leveraged play on broader risk assets,” Matt Miskin, co-chief investment strategist at John Hancock Investment Management, said in an interview. “It’s a more speculative investment and right now investors care more about dependability and cash flows and all that. In our view, that’s not a backdrop that changes into next year. So we see more downside risk in risk assets and crypto would be a part of that market.”
The declines also come despite MicroStrategy Inc.’s announcement that it purchased about $6 million in Bitcoin between Aug. 2 and Sept. 19.
“Markets — both crypto and broader — are in full macro risk mode ahead of the FOMC this week,” said Tagus Capital’s Ilan Solot. “I don’t think MicroStrategy’s purchase moves the needle much. A chunk of the leverage longs, especially in ETH, has been cleared out. So that’s a better technical position, but we still need a positive catalyst to make a difference in sentiment.”