This week, Bitcoin (BTC) fell below a critical support level of $38,000, as fears of an economic recession and rising interest rates grew.
The token has dropped more than 8% in the last 24 hours, hitting a one-and-a-half-month low of roughly $35,000. In 2022, the drop was likewise one of the steepest yet. The token is now around 10% higher than its lowest point this year, which was in January.
However, BTC’s recent decline paralleled that of US financial markets. This year, the coin has followed stock markets closely, especially prominent technology equities in the Nasdaq Composite and Nasdaq 100 indices.
Crypto and equities traders are both concerned about rising interest rates. The Federal Reserve has already raised interest rates twice this year and is expected to do so again to battle rising inflation.
BTC falls in lockstep with the Nasdaq
BTC’s one-day chart reveals that the token’s latest decline started shortly before the U.S. market opened. On Wednesday, the Nasdaq Composite and Nasdaq 100 indexes both fell by roughly 5%.
Rising rates affect technology companies because they make future earnings look less appealing. Low interest rates fueled their rise through 2021, making it easier to borrow money and invest it in equities, which raised BTC.
As a result, the token acts more like a technology stock.
However, this had the unintended consequence of dramatically increasing inflation, which was exacerbated by the Russia-Ukraine conflict. Central banks all around the world are now racing to reduce inflation by raising interest rates.
Crypto is harmed by tight monetary policy.
The US isn’t the only country that has raised interest rates. The Bank of England, as well as central banks in Australia and India, recently raised lending rates, both in an unexpected move. Inflation is becoming a greater danger to economic growth, according to all three banks.
Traders choose assets with higher real-world exposure, such as commodities, utilities, and consumer staples, in such an environment. Typically, technology stocks are shunned.
As a result, BTC and the crypto market are likely to experience some downturn, at least until central banks are able to introduce inflation.
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