Bitcoin Is A Rates Rookie, Buying The Dip Spells Trouble

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Cryptoverse: Buying the dip? Bitcoin's a rates rookie

Bitcoin has scant experience with rising interest rates, posing perils for investors looking to capitalize on its dramatic drop.

The cryptocurrency has tanked along with other risk assets such as tech stocks after the Fed amped up rates last week, sending them on a trajectory that's expected to pass 3 per cent early next year.

Bitcoin was an awkward child on the fringes of finance during the Fed's previous tightening cycle, from 2016 to 2019, and was barely correlated with stocks. The last time interest rates hit 3 per cent, in 2008, it was but a gleam in the eye of Satoshi Nakamoto.

Crypto price moves are baffling at the best of time, let alone when the market's entering uncharted waters, upping the risk level for traders pondering buying the dip.

Bitcoin fell to $29,731 on Tuesday, its lowest level since July 2021, after dropping nearly 12 per cent last week, its worst weekly loss since January.

"This isn't the first time that we've reached this level, and the risk-reward ratio for picking up bitcoin here has been very good in the past year or so, but we are seeing a different macro backdrop," said Matt Dibb COO of Stack Funds, a Singapore-based crypto platform.

"The concern is this time is different with respect to whether we will see continued weak sentiment in traditional financial markets, which is likely given the inflation outlook and the likelihood of increased rates in the next few months or years."

The Fed's rate rise of by 50 basis points last week was its largest in 22 years. Further 50 bps hikes are expected in both June and July, with the possibility of a fourth move in September according to CME group's FedWatch tool.

"The era of free money is over. There's a