All things considered, 3Q’22 wasn’t that bad for cryptocurrency markets and Bitcoin prices in particular, which fell by around -4.5% over the past three months. Certainly, it was better than 2Q’22 when Bitcoin took a haircut of more than -50%. While some may see this as a silver-lining – the losses are slowing – the truth of the matter is that the factors that have dragged down cryptocurrency markets in 2022 remain in place heading into 4Q’22.
Fundamental Analysis Matters Little…
We could spend this time trying to make a fundamental argument for why cryptocurrency markets and Bitcoin prices have brighter days ahead. We might point to the increased number of active addresses (as either a sender or receiver) over the course of 3Q’22, or that the total hash rate of the Bitcoin network increased since the beginning of July.
Yet the fact of the matter is that neither of these perspectives matter as long as Bitcoin prices continue to trade like a high beta tech stock: the 50-day correlation between Bitcoin prices and the US Nasdaq 100 was +0.90 as of September 23.
…as Long as Central Banks are Hiking Rates
The harsh reality right now is that cryptocurrency markets and Bitcoin represent, or are at least treated like, a highly speculative risk asset. Of note, Bitcoin is treated like a long duration asset. In a world where central banks, particularly the Federal Reserve, are steaming ahead with interest rate hikes, then long duration assets will suffer. It’s all one trade right now: higher Fed rate hike odds push up US Treasury yields, which support the US Dollar, weighing on gold prices, stock prices, and cryptocurrency markets. Until the macro environment changes, there’s little reason to think that Bitcoin prices will be able to stage any sort of meaningful recovery. 4Q’22 will likely be a continued slog, no different than 3Q’22.
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