In a redux of trading from the early days of the coronavirus crisis in March, bitcoin tumbled Thursday in tandem with a sell-off on Wall Street – rekindling an ongoing debate over the cryptocurrency’s use as a store of value.
Prices for bitcoin fell 6.37% to about $9,100, as the Standard & Poor’s 500 Index of large U.S. stocks lost 5.7%.
You’re reading First Mover, CoinDesk’s daily markets newsletter. Assembled by the CoinDesk Markets Team, First Mover starts your day with the most up-to-date sentiment around crypto markets, which of course never close, putting in context every wild swing in bitcoin and more. We follow the money so you don’t have to. You can subscribe here.
The slide in stocks came a day after the Federal Reserve provided an unexpectedly dour assessment of the outlook for the U.S. economy, and investors speculated that a possible uptick in new cases might slow the pace of the recovery. Some investors may have also sold bitcoin, still seen as a risky asset despite its 30% gain year-to-date.
“I think the general negative sentiment of traditional markets affects bitcoin,” Sasha Goldberg, senior trader for Efficient Frontier Markets, a digital asset quant fund, told CoinDesk’s Daniel Cawrey.
Thursday’s plunge in bitcoin prices was nowhere near the 39% wipeout on March 12, when it became clear to investors across all markets just how devastating of a toll the coronavirus was likely to take on the economy.
The day’s session kindled chatter anew among cryptocurrency analysts over whether bitcoin is mostly uncorrelated with traditional assets, or whether it should trade as an inflation hedge like gold, or in sync with riskier assets like stocks.
“The institutionalization of crypto (i.e. same firms that trade stocks and other assets, trading crypto), will lead to higher correlation, especially during extreme risk on/off scenarios such as margin calls,” said Denis Vinokourov, head of research at Bequant, a London-based prime brokerage to cryptocurrency investment firms.
Thursday’s price decline came just a day after the Fed indicated that joblessness would remain elevated for at least three years. That means Fed officials expect to keep interest rates close to zero through 2022, while pumping at least $120 billion a month of freshly created money into the financial system for the foreseeable future. If bitcoin is an inflation hedge, then loose monetary policy should theoretically be good for the price.
Larry Kudlow, one of President Donald Trump’s top economic advisors, told Fox Business Network in an interview Thursday that the Federal Reserve’s balance sheet’s “gonna rise by about $10 trillion by year-end.” Just in 2020 alone, the Fed’s total assets have climbed by about $3 trillion to $7.2 trillion.
“You know, I don’t know why the market has sold off,” Kudlow said Thursday.