Crypto altcoins are busting as post-Fed rally sweeps across risky assets

A rally in battered cryptocurrencies stumbled on Thursday at the prospect of an ongoing campaign of Federal Reserve interest rate hikes that will likely draw liquidity from global markets.

Everything from bitcoin to smaller and sometimes lesser-known tokens — so-called altcoins — gave up the majority of previous gains. A sustained sell-off has caused the crypto market value to drop by more than $1 trillion this year.

Bitcoin, which had previously gained as much as 6.1%, pared the rise to 1.5 percent by 6:50 a.m. London to trade at around $21,940. Ether – which at one point added 6.6 percent to $1,256 – is little changed. Cardano, Solana and Dogecoin ranged from flat to 6 pieces.

Today was a “short-term crypto bear market rally,” said Eric Schiffer, chief executive officer of private equity fund Patriarch Organization in Beverly Hills, California. “This bear market won’t go away until the Fed decides it will give way, which I expect by the end of the third quarter.”

Crypto markets have inflicted heartbreaking losses over the past month, but many have welcomed the squeeze of excess and sky-high speculation.

“The reality is we need to see a capitulation where that ‘noobishness’ is washed away,” said Max Gokhman, AlphaTrAI’s chief investment officer, adding that “we need to see the asset class evolve to a more mature state evolved, and I think that’s about it in the process of doing that.”

Crypto began slipping late last year on expectations of a less accommodative Fed, with rising interest rates hurting the industry and its prospects.

The collapse of the Terra blockchain last month and crypto lender Celsius Network Ltd.’s recent decision to halt withdrawals have also taken their toll, while a tweet this week from crypto hedge fund co-founder Three Arrows Capital has fueled speculation that he had suffered great losses.

Long-time holders who have so far avoided selling are also coming under pressure, according to researcher Glassnode.

“Crypto is a risky asset. It’s a reflection of people picking where they are on the risk spectrum, whether they’re playing risk-averse or risk-taking,” Anna Han of Wells Fargo Securities LLC said in an interview.

The Fed hiked interest rates by 75 basis points on Wednesday, stepping up the fight against inflation. Powell announced another big hike in July, but added, “Today’s 75 basis point rise is unusually large and I don’t expect moves of this magnitude to be common.”

Leaning on the risk of a series of jumbo moves initially calmed global markets before concerns returned over heightened price pressures and slowing economic growth.

All types of cryptocurrencies have been hit by negative developments. A number of crypto firms have announced layoffs and hiring freezes, and many market watchers are anticipating further price declines.

Michael Purves, founder and CEO of Tallbacken Capital, sees this risk for Bitcoin. “We remain of the view that the overall Bitcoin picture is bearish and perhaps our target of $15,000 is not bearish enough,” he wrote in a note. “Nevertheless, in the short term, we recommend taking profits on short positions.”