After a decent rally in recent months, the crypto market is coming off a tough weekend as macro concerns continue to spark fear in the broader market.
Over the last 24 hours, the world's largest cryptocurrency, Bitcoin (BTC 0.06%), traded more than 4% lower as of 11:05 a.m. ET. The price of the world's second-largest cryptocurrency, Ethereum (ETH 0.10%), traded nearly 6.6% lower, and the price of Dogecoin (DOGE 0.14%) traded nearly 10% down. Dogecoin is also dealing with the evolving situation regarding Tesla founder Elon Musk and his position at Twitter.
Bond yields continued to rise this morning as investors mulled the macro outlook, which is being impacted by several factors including rising inflation, Russia's ongoing invasion of Ukraine, and the Federal Reserve's monetary plans. The yield on the closely watched U.S. 10-year Treasury bill rose to around 2.75%. We now know the Fed is planning to raise its benchmark overnight lending rate, the federal funds rate, numerous times this year and also begin shrinking its massive balance sheet by as much as $95 billion per month later this year. The Fed may also raise the federal funds rate by a half a percentage point all at once this year, a deviation from its normal 0.25% rate hikes.
"Bitcoin is down again as institutional investors grow nervous over the upcoming pace of tightening by the Fed," Edward Moya, an analyst at Oanda, told Barron's. "Bitcoin's cage is the $38,000 to $48,000 range and that could hold over the next week or two."
"Bitcoin and ether are highly correlated to the Nasdaq-100. If the NDX tanks, it will take crypto down with it," Arthur Hayes, co-founder of BitMEX, wrote in a blog post yesterday.
In addition to the volatile markets, Dogecoin is dealing with its own set of issues related to Musk and Twitter. Securities and Exchange Commission (SEC) filings last week revealed that Musk had taken a 9.2% stake in Twitter. It was also announced that Musk, who has been critical of the social media giant over free speech issues, would join Twitter's board of directors. The news sparked a rally in Dogecoin. But over the weekend, Musk told Twitter he had decided not to join the board, throwing into question what kind of role Musk might play in the company's future.
Many believed Musk joining Twitter's board was not only good for the company, but also for Dogecoin, one of three cryptocurrencies Musk owns and has been very vocal about. Recently, Musk suggested users should be able to pay for Twitter's new subscription service with Dogecoin.
But with Musk opting not to join the board, his role at Twitter may end up being a lot less supportive and influential than people thought initially following the announcement he would join the board.
I think macro headwinds are going to continue to impact the broader crypto market. Especially with inflation so high and the Fed likely pulling liquidity out of the market, there could be less room and appetite for the speculative crypto market.
That said, cryptocurrencies have wedged their way into the traditional financial system and all over the world, so I continue to view the most influential and useful cryptocurrencies like Bitcoin and Ethereum as long-term buys.
I am less bullish on meme-inspired ones like Dogecoin, but with influential people like Musk behind it and already a large market cap, you never know. I just don't see any technical or fundamental reason to invest in the token.