Bitcoin Plunges Most in Two Months Amid Stock Market Selloff

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Just one day after crypto and traditional markets soared on Federal Reserve Chair Jerome Powell’s comment that the U.S. central bank wasn’t likely to raise interest rates by more than 50 basis points (0.5 percentage point) at coming meetings, dynamics quickly changed.

Bitcoin (BTC), the largest cryptocurrency by market cap and the most affected by macroeconomic factors, dropped 7.3% Thursday to a 24-hour low of $36,640, according to data from TradingView. It was the lowest price since February 24 and marked the biggest selloff since March 4.

“Yesterday’s FOMC saw a rate hike alongside more concrete balance sheet contraction talk – things that don’t bode well for markets,” said Joe DiPasquale, CEO of BitBull Capital, a cryptocurrency fund of hedge funds. FOMC stands for Federal Open Market Committee, the Fed panel that sets monetary policy. “Even though there was an initial surge in BTC, it is not isolated from these macroeconomic changes, and today’s price action reflects that.”

Bitcoin’s drop came as the S&P 500 skidded 3.8% and Nasdaq Composite Index lost 4.9%, possibly reflecting the recently elevated correlation between the two indexes and bitcoin.

Paul Hickey, Bespoke Investment Group co-founder, called Thursday’s market selloff a “reality check” on CNBC after Powell on Wednesday shut down rumors that the Fed might raise interest rates by 75 basis points in one of its upcoming meetings. The comments sent stocks and crypto soaring, in a relief rally.

But inflation at its fastest pace in four decades remains a nagging concern, and the Fed’s approach to tackle the issue is still extremely hawkish, at a time when doubts are growing whether the U.S. central bank can engineer a proverbial “soft-landing” – cooling the economy just enough to ease inflationary pressures without causing an outright recession.

The 10-year U.S. Treasury-bond yield pushed above 3%, the highest level since 2018, likely stiffening the economic headwinds by increasing borrowing costs for everything from mortgages to corporate loans and commercial real estate.