Bitcoin is ‘paying the price’ for Wall Street’s ‘de-risking’ plight
Bitcoin is down 7% on the day as the cryptocurrency market is paying the price for the accelerating "de-risking" mode on Wall Street, according to analysts.
Investors continue to flee risk assets as the Russia-Ukraine conflict's uncertainty weighs on market sentiment. And the crypto market is caught up in the selloff.
The world's largest cryptocurrency tumbled along with risky stocks on Thursday, with Bitcoin last trading at $41,037, down 7.2% on the day. Ethereum was down 8% on the day and trading at $2,905.
"Wall Street has gone full de-risking mode, and Bitcoin is paying the price," said OANDA senior market analyst Edward Moya. "Fears over geopolitical concerns and potentially aggressive central bank tightening has cryptos across the board in freefall."
Tensions escalated as the U.S. said that war in Ukraine was "imminent" after shelling was reported on Ukraine's front line. "The evidence on the ground is that Russia is moving toward an imminent invasion. This is a crucial moment," said U.S. Ambassador to the United Nations, Linda Thomas-Greenfield.
U.S. President Joe Biden confirmed that there is every indication that Russia is planning to invade Ukraine, citing Moscow carrying out a false flag operation to justify military action. "We have reason to believe they are engaged in a false flag operation to have an excuse to go in. Every indication we have is they're prepared to go into Ukraine and attack Ukraine," Biden told reporters on Thursday.
Russia has been denying that it plans to attack Ukraine and stated earlier this week that it was pulling back some troops from the border. However, Washington noted there was no evidence of the withdrawal.
Traders view Bitcoin as the "ultimate risky asset," and any further escalation in Ukraine would keep the downward pressure on prices, noted Moya. "A Ukraine invasion would keep crypto selling pressure going another 10-15% over the short-term," he added.
This keeps Bitcoin's trading pattern connected to high-risk stocks, which saw another significant drop on Thursday, said Pepperstone's head of research Chris Weston.
"Crypto has shown us once again that it is a high beta risk asset, and it has a dark sinister look that could morph into something ugly. Recall, these instruments can be traded long or short as a CFD," Weston pointed out.
The Dow Jones closed the day down 1.8%, the S&P 500 fell 2.1% and the Nasdaq declined 2.9% on the day.
The longer-term outlook on Bitcoin remains bullish, but one obstacle could be aggressive tightening on behalf of the Federal Reserve, which could hurt the growth prospects in the U.S.
Fears of slower economic growth going forward could contribute to the risk-off sentiment and trigger a further decline in institutional involvement, Moya added.
The latest comments from central bank officials saw St. Louis Fed president James Bullard once again supporting a full percentage point increase over the next three meetings in order to fight problematic inflation.
"We are missing our inflation target on our preferred measure... and policy is still at rock bottom lows and we've still got asset purchases going on," Bullard told CNN on Thursday. "This is a moment where we need to shift to less accommodation."
There were also several regulation-related headlines in the crypto space on Thursday, with the Justice Department announcing the appointment of Eun Young Choi as the first Director of the National Cryptocurrency Enforcement Team (NCET).
The crypto market is also eyeing the upcoming release of U.S. President Joe Biden's executive order on crypto regulations and a central bank digital currency (CBDC).
"Uncertainty for stablecoins is a short-term negative for cryptos, but overall long-term growth for the cryptoverse will embrace U.S. regulation," Moya added.
In Canada, the Royal Canadian Mounted Police (RCMP) has sent letters to crypto exchanges to freeze at least 34 crypto wallets in connection to the Freedom Convoy protests. The move comes after the country's Prime Minister Justine Trudeau invoked the Emergencies Act.
"The Ontario Provincial Police and Royal Canadian Mounted Police are currently investigating cryptocurrency donations being collected in relation to illegal acts falling under the scope of the Emergency Measures Act." The RCMP said.
In contrast to crypto, gold has been posting gains and hitting $1,900 an ounce — the highest level in eight months.
Gold bull Peter Schiff, who is Euro Pacific Capital's chief economist & global strategist, said on Thursday that it is gold's time to shine.
"People still fixated on #Bitcoin are living in the past. Gold is the future. The last ten years are irrelevant to what will happen over the next," he tweeted. "The price of gold just rose above $1,900 for the first time in eight months. Meanwhile, Bitcoin is back below $42,000. What was promoted as digital gold has become the anti-gold."