Crypto markets are increasingly acting like speculative assets—no different than tech stocks, commodity futures, and anything pegged to rapid economic growth and excess liquidity.
Bitcoin and other cryptocurrencies were slumping on Monday, falling in tandem with equities that were under pressure due a spate of bad news over the weekend.
Bitcoin was down 2.5% to $46,100 while Ether, the native token of the Ethereum network, was off 3% to $3,800. The
Nasdaq Composite Index
was down 1.4%.
The positive narrative for crypto is getting murkier with the Omicron variant spreading rapidly and central banks priming the market for tighter monetary policies and interest rates in 2022. A fresh blow came on Sunday as Sen. Joe Manchin (D-W. Virginia) said he would not support the Democrats’ Build Back Better legislation, effectively killing the $1.7 trillion package for now.
The tougher outlook has Wall Street trimming U.S. economic growth estimates with Goldman Sachs cutting its first-quarter forecast for gross domestic product growth to 2% from 3%, and lowering the outlook for subsequent quarters.
The correlation between loose monetary policy and rising crypto prices hinges on the idea that investors would rather take a chance on a risky asset like Bitcoin than keep money in the bank , earning zero percent. Yet as the “risk-free” rate rises, so too does the opportunity cost of speculating.
Perhaps more than the math behind that trade off is a sense that…
