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Bitcoin pares drop sparked by Federal Reserve’s warning of rate-hike pain

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Cryptocurrencies pared declines triggered by another large Federal Reserve interest-rate hike, though sentiment remained cautious given the central bank’s warning of economic pain ahead from tightening policy.

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Bitcoin, the largest token, was about 1 percent lower as of 5:20 a.m. in London on Thursday after earlier sliding as much as 4 percent toward levels last seen in 2020. Second-biggest coin Ether continued to underperform, shedding over 3 percent.

Markets are shuddering at the Fed’s determination to fight inflation by constricting financial conditions. Shorter maturity Treasury yields jumped more than longer tenor rates, deepening a bond curve inversion seen as a signal of recession. A dollar gauge was at a record as investors sought a bolthole.

Such a backdrop offers little respite for crypto markets. They were already reeling from a $2 trillion plunge from a 2021 record high, an unraveling pockmarked with blowups such as the Three Arrows Capital hedge fund and the Terraform Labs project -- whose co-founder Do Kwon is wanted by authorities.

“If the Fed keeps tightening, unless it implements yield curve control to keep the curve positively sloped, the crypto system will see a lot more failures,” said Brian Pellegrini, founder of Intertemporal Economics. “At the end a few very rich champions will emerge, but in the meantime there will be blood in the streets.”

The MVIS CryptoCompare Digital Assets 100 Index is down this week, taking its losses for 2022 to about 62 percent compared with 22 percent for global stocks. The correlation between equities and Bitcoin is elevated and close to a record, a sign of how assets are being tossed around by common macro factors.

‘Ponzi Schemes’

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon didn’t help the mood in digital-asset markets by reaffirming his skepticism and calling tokens “decentralized Ponzi schemes.

Bitcoin was at about $18,700 and Ether $1,260. Ether continues to take an additional hit as an earlier rally sparked by hype around the upgrade of its Ethereum network unwinds. Coins like Solana and Avalanche were mixed.

Some traders might look to measures like Bitcoin’s 14-day relative strength index for affirmation that a bounce is possible. The RSI, a momentum gauge, is close to oversold levels. But contrarian bets appeared few and far between for riskier assets following the Fed’s pugnacious performance.

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