- Stocks and cryptos crashed after Jackson Hole on Friday
- Bitcoin, in particular, is trading like a big tech stock, analysts say, and until macro conditions change, it will remain so
Markets extended their declines on Friday after Federal Reserve Chair Jerome Powell took a more hawkish stance during his remarks in Jackson Hole. Cryptocurrencies slipped further into the red as traders became increasingly discouraged by the Fed’s likely move in September.
The S&P 500 and Nasdaq were trading down 2.3% and 2.8%, respectively, at the time of publication. Bitcoin and ether also lost 4% and 7%, respectively.
“Today’s reaction to Fed Chair Powell’s Jackson Hole speech is somewhat surprising as he hasn’t really said anything new, at least to Fed watchers, and markets seem to have largely priced in a 75 basis point rate hike,” Bill Cannon said . Head of portfolio management at digital asset fund manager Valkyrie Investments, Blockworks said.
“Powell has made it clear through his recent statements that rate hikes are needed to cool inflation, and today’s statement reinforced that strategy,” Cannon said.
Cryptos have struggled to turn around this year. Both bitcoin and ether are down more than 50% year-to-date, and without a significant shift in macroeconomic conditions, analysts don’t expect a rally.
“Unfortunately, when it comes to inflation, bitcoin behaves like a tech stock,” said Patrick Feeney, former hedge fund trader and founder of the Feeney Factor.
“[Bitcoin is] It’s supposed to be digital gold, but it just hasn’t been going that way lately,” Feeney said.
Bitcoin correlation and market expectations
Bitcoin’s correlation coefficient with the S&P 500 hit 0.64 in early May, before falling to around 0.4 earlier this month, according to data from Coin Metrics. A coefficient of 1 means that the assets are moving in perfect sync.
However, the trend is back up, the data shows, with the correlation coefficient fluctuating near 0.5 earlier this week.
“Over the past year, crypto and stock markets have traded closely together,” Clara Medalie, strategic initiatives and head of research at data provider Kaiko, told Blockworks earlier this month. “What we’ve seen over the past year is that correlations tend to strengthen around major economic data releases, such as Fed meeting notes or inflation numbers.”
Recent data such as falling unemployment figures and the latest Consumer Price Index (CPI) report may indicate that inflation is cooling. The Fed’s preferred measure of inflation, the Personal Consumption Index, which was released Friday before Powell’s comments, also shows prices falling in July. The year-on-year change was 6.3% in July, down from 6.8% in June.
Still, Powell warned on Friday that there is still a long way to go before sustained price stability is achieved.
“Estimates of longer-term neutrality are not a place to pause or stop,” Powell said during his speech on day two of the Economic Policy Symposium hosted by the Kansas City Federal Reserve. “Our decision at this September meeting will depend on the aggregate of data coming in and the evolving outlook,” he said.
Futures markets are now calling for a 60.5% probability of a 75 basis point rate hike in September, which would be the third straight hike by the central bank of this magnitude, according to CME Group data.
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