Crypto ‘relief rally’ erased as Bitcoin falls to $37,000

In less than 24 hours, the “relief rally” for cryptocurrencies following the Federal Reserve’s meeting has been erased.

Unable to crest its key $40,000 price point during Wednesday’s rally, bitcoin tumbled more than 9% between 9 and 4 pm New York time Thursday from $39,500 to $36,300 per coin.

Ether (ETH) sold off by 7% on the day from $2,939 to $2,741. The Nasdaq and S&P 500 are trading 5% and 3.5% lower.

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.”

Analytics price change cryptocurrency BTC to USD (Bitcoin / US Dollar), the most popular pair in the world. Big bitcoin logo.

Since January, Bitcoin has sold off 24% from $47,733, tracking losses nearly in sync with the Nasdaq Composite index (-22.2% YTD).

Currently, BTC holds its tightest 30-day correlation (.90) with the second largest cryptocurrency, ether (ETH), which has sold off 27.7% year-to-date. As of Thursday afternoon, the combined market capitalization of bitcoin and ether account for 62% of the $1.66 trillion crypto asset market.

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.

“This pullback could be exacerbated by liquidations but there’s still a solid [$30k] floor for the asset so I imagine we are not going to see the massive drawdowns that characterized 2020 and 2021,” said Saffai adding, “its starting to become more apparent that perhaps bitcoin won’t break out on its own until we see more resolution , which could be months away.”

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 30-day correlation to S&P 500 has been falling but remains in a 7-day range higher than any period for 2022, based on data from Coinmetrics. 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 and through Friday,” Kramer added.

Bitcoin mining companies selling their coins has become another notable factor for the asset’s near-term performance. During its earnings call Wednesday afternoon, publicly-traded Bitcoin mining company Marathon Digital ($MARA), precluded that it might sell some of its 9,673 bitcoins to grow its mining computer scale.

“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.

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