# Cryptoverse: Buying the dip? Bitcoin’s a rates rookie
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-05-10
Category: TRADING
Category URL: https://financedigest.com/category/trading
Meta Title: Bitcoin: Perils Await Investors on Path to Recovery
Meta Description: Discover how Bitcoin's struggles with rising interest rates impact investors and its recent price drop, amid uncertainties in traditional financial
URL: https://financedigest.com/cryptoverse-buying-the-dip-bitcoins-a-rates-rookiehtml

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By Lisa Pauline Mattackal and Medha Singh

(Reuters) – 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% early next year.

Bitcoin was an awkward child on the fringes of [finance during the Fed’s previous tightening](https://www.financedigest.com/personal-finance-fasten-your-seatbelt-tighten-your-belt-that-rainy-day-is-here.html "Personal Finance: Fasten your seatbelt, tighten your belt, that rainy day is here") cycle, from 2016 to 2019, and was barely correlated with stocks. The last time interest [rates hit](https://www.financedigest.com/sp-warns-of-possible-economic-blow-hit-to-japan-inc-from-boj-rate-hike.html "S&P warns of possible economic blow, hit to Japan Inc from BOJ rate hike") 3%, in 2008, it was but a gleam in the eye of Satoshi Nakamoto.

Crypto price [moves are baffling at the best of time](https://www.financedigest.com/move-over-tina-its-time-for-tara.html "Move over TINA, it’s time for TARA"), 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% last week, its worst [weekly loss since](https://www.financedigest.com/dollar-retreats-headed-for-biggest-weekly-loss-since-mid-january-bitcoin-down.html "Dollar retreats, headed for biggest weekly loss since mid-January; bitcoin down") 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](https://www.financedigest.com/meta-to-wind-down-nfts-on-platforms-amid-crypto-bust.html "Meta to wind down NFTs on platforms amid crypto bust").

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](https://www.financedigest.com/german-inflation-rate-to-ease-over-course-of-2023-econ-minister.html "German inflation rate to ease over course of 2023 – econ minister") in the next few months or years.

The [Fed’s rate](https://www.financedigest.com/fed-rates-up-boe-up-ecb-up-stocks-up.html "Fed rates up, BoE up, ECB up, stocks up") rise of by 50 basis points last week was its largest in 22 years. Further 50 bps [hikes are expected](https://www.financedigest.com/ecbs-makhlouf-expects-50-bps-rate-hike-in-december.html "ECB’s Makhlouf expects 50 bps rate hike in December") 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 large adjustment of [investor appetite](https://www.financedigest.com/investor-appetite-for-italy-returns.html "Investor appetite for Italy returns") happening right now,” said Chris Kline, COO and co-founder of Bitcoin IRA in Los Angeles.

Ether, the world’s second largest cryptocurrency fell to $2,360 on Monday, its lowest mark [since February](https://www.financedigest.com/dollar-heads-for-first-weekly-gain-since-february.html "Dollar heads for first weekly gain since February"), and smaller coins, or “altcoins”, have sold off more aggressively.

The more speculative altcoins are going to struggle, as we’ve seen in past volatile [times in the crypto](https://www.financedigest.com/how-to-use-algorithms-to-save-time-and-make-money-when-trading-currency-crypto-shares-etc.html "How to use algorithms to save time and make money when trading (currency, crypto, shares etc)") space. [Bitcoin is considered](https://www.financedigest.com/cryptoverse-is-bitcoin-out-of-the-woods-consider-the-options.html "Cryptoverse: Is bitcoin out of the woods? Consider the options") risky, but some altcoins are at an even higher risk and those will have even larger sell-offs,” said Kline.

“The question mark is, will people see (crypto) as a diversification tool in bad economies? Or is it just something to have when times are good?”

WHAT HAPPENS IN A RECESSION?

It is not just [crypto markets](https://www.financedigest.com/new-crypto-card-and-exchange-to-launch-for-london-market.html "New crypto card and exchange to launch for London market") that are tumbling. Equity markets have also plunged as investors [fear global central banks are willing to push economies into recession](https://www.financedigest.com/banking-turmoil-means-recession-fears-are-creeping-back.html "Banking turmoil means recession fears are creeping back"), if necessary, to rein in inflation.

What’s [interesting is that bitcoin itself hasn’t declined quite as much as the Nasdaq and some other asset](https://www.financedigest.com/angels-and-assets-should-wealth-managers-take-an-interest-in-angel-investment.html "Angels and Assets: Should Wealth Managers Take an Interest in Angel Investment?") classes, but the correlation has tightened between them. It’s certainly a [higher correlation than we’ve seen](https://www.financedigest.com/wall-street-seen-opening-higher-but-u-s-recession-priced-in.html "Wall Street seen opening higher but U.S. recession priced in") in the past,” said Benjamin Dean, director of digital assets at WisdomTree in London.

The Nasdaq and S&P 500 [posted their fifth](https://www.financedigest.com/one-fifth-of-uk-workers-do-not-intend-to-commute-again-post-pandemic.html "One fifth of UK workers do not intend to commute again post pandemic") straight week of declines last week and the Dow Jones its sixth. It was the longest [losing streak](https://www.financedigest.com/european-shares-end-five-day-losing-streak-still-down-for-the-week.html "European shares end five-day losing streak, still down for the week") for the S&P 500 since mid-2011 and for the Nasdaq since late 2012.

Crypto’s correlation with [stocks is one reason for its recent crypto sell-off](https://www.financedigest.com/stocks-extend-sell-off-as-u-s-warns-of-imminent-russian-invasion-of-ukraine.html "Stocks extend sell-off as U.S. warns of imminent Russian invasion of Ukraine").

We are getting feedback from investors in some family offices that are [liquidating crypto because they are liquidating other assets](https://www.financedigest.com/britains-post-brexit-asset-management-revamp-eyes-liquidity-tokenisation.html "Britain’s post-Brexit asset management revamp eyes liquidity, tokenisation"), and they need to make it up on their book for this quarter to show that they’re not dying in everything and they’ve got some money on the side to get back into equities when they bottom out,” said Dibb of Stack Funds.

Some also [note that sell-offs happen periodically in markets](https://www.financedigest.com/the-chelated-iron-agricultural-micronutrient-market-to-escalate-on-a-holistic-note.html "The Chelated-Iron Agricultural Micronutrient Market To Escalate On A Holistic Note").

From my perspective, two-way price action and occasional washouts are healthy for markets, including crypto,” said Brandon Neal, COO of Euler, a project that allows [lending and borrowing of crypto](https://www.financedigest.com/what-crisis-high-stakes-crypto-lending-looks-here-to-stay.html "What crisis? High-stakes crypto lending looks here to stay") assets.

He added a note of caution, though.

“We’ve never seen crypto in a recession, and it’s anyone’s guess what will happen.”

(Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Alun John and Pravin Char)


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