Bitcoin’s Institutional Osmosis Laid Bare as Markets Fall

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  • Bitcoin’s relationship with the stock market was highlighted yesterday as global markets fell
  • Fears over a Federal Reserve interest rate hike caused U.S. markets and Bitcoin to sell off
  • There may be worse on Wednesday as inflation data is released

Bitcoin’s relationship to the stock market was evident yesterday when the price dropped briefly under $40,000 as the impact of the Federal Reserve’s plans to hike interest rates in the near future became clear. All the major stock indices took the news badly before recovering, while Bitcoin reacted with a brief drop to $39,750 before rebounding to $42,000. However, the negative price action could be a prelude to what is going to happen later in the year when the rate hikes actually kick in.

Market Jitters Down to Fed Interest Rate Hike Discussions

Yesterday we covered the potential impact of the quantitative tightening measures the Fed is planning and how they relate to Bitcoin, and what happened yesterday was a perfect example of that link.

The global drops, which saw the Nasdaq, the S&P 500, and the Dow Jones all open over 1% down from Friday, were a reaction to rumors over the weekend about the Fed’s plans rather than a formal announcement, although the agency has made no secret of its desire to raise interest rates and claw back some of the money it has pushed into the system over the last two years.

There Could be More Blood for Bitcoin on Wednesday

US government bond yields hit a two-year high as investors banked on the Fed raising rates from as early as March, with US inflation data due on Wednesday. If inflation remains at record highs then an interest rate hike is inevitable, which would likely see Bitcoin hit once again.

After enjoying a mammoth run from $3,500 to $69,000 in 18 months, it would hardly be a surprise to see Bitcoin’s epic run tapering off and a bear market beginning, which would likely see Bitcoin retesting its 2017 high of $20,000 as support.