Crypto investors have long hoped for a “decoupling” between bitcoin and growth stocks, as the two assets often traded in tandem during the past several months. Both have suffered so far this year, as investors are concerned about soaring inflation, signs of a softening economy and the Federal Reserve’s tightening of its monetary policy.
The markets showed signs of a potential “decoupling” this week, but not in the way crypto enthusiasts had hoped, as bitcoin tanked while major stock indexes went up on Thursday.
Bitcoin lost 1.4% over the past 24 hours to around $29,462 on Thursday, while ether plunged 6.1% to around $1,846, according to CoinDesk data. By contrast, the Dow Jones Industrial Average DJIA gained 1.7% to 32,680. The S&P 500 SPX rose 2.1%, while the Nasdaq Composite COMP went up 2.7%.
Bitcoin BTCUSD, +0.38% is down more than 55% from its all-time high in November and continues to trade in consolidation, while ether ETHUSD, +0.97% trades almost 60% lower from its record high. Most smaller coins are seeing even bigger losses.
Crypto’s performance for the rest of the year still largely depend on investors’ risk appetite, which is led by the macroeconomic environment, analysts said.
While bitcoin held up better than equities in the first quarter, it can plunge quickly in a selloff. “I think you can hit a bottom in crypto a lot faster than you can in traditional markets,” Joseph Hickey, BlockFi’s global head of trading, said in an interview. 
“It looks very possible that bitcoin will incur losses in 2022,” said Tony Nyman, FX fundamentals manager at Informa Global Markets, noting that the cryptocurrency kicked off the year trading close to $48,000. “The more pertinent question could be whether BTC/USD falls any further than recent softest of $25,425,” Nyman wrote in an email to MarketWatch. 
“We think this is likely,” Nyman wrote, highlighting $22,000, $20,000 and $17,840 as “realistic downside targets” for the second half of the year.
Ben McMillan, founder and chief investment officer at IDX Digital Assets, compared the recent consolidation in the crypto market to the dot-com bust in the early 2000s, saying that it is “ultimately good for the space.”
“It reminds me of back in the 2000s, the selloff of both and They were both down over 80%. One of them went out of business, while the other one went on to become an industry leader,” McMillan said. 
“I think the key for long term price appreciation is, we need to see a risk bid come back into markets,” McMillan said. “It means that investors need to see inflation peaking. I think they need to see language out of the Fed that helps inform expectations around when they might pare back on the tightening.”
If the risk appetite comes back, McMillan said he wouldn’t be surprised to see bitcoin “getting back to even for the year, maybe even a little bit positive.”
Investors are also watching Ethereum’s “Merge,” a major upgrade that will transition the blockchain from proof-of-work to proof-of-stake, a consensus mechanism that is less energy-intensive. 
Ethereum Foundation, which supports the blockchain, anticipated the “Merge” to be completed in the third or fourth quarter of this year. 
“I think it will be a good price catalyst, but is it enough to lift the Ethereum if the macro environment is still tough and we still don’t see a bid for risk assets? I don’t think investors should bank on that,” according to McMillan. 
Despite the selling pressure in the public market, capital keeps pouring into the private market for crypto. 
Andreessen Horowitz on Wednesday said it has raised $4.5 billion for its fourth and largest crypto fund. “We think we are now entering the golden era of web3,” which refers to the so-called next generation of the internet, Chris Dixon, founder and managing partner at the firm’s crypto unit, wrote in an email statement. 
Still, “the valuations are already low for a lot of projects. That’s in a good way,” Kavita Gupta, founder and general partner at Delta Blockchain Fund told MarketWatch in an interview. 
“I think this will make everybody take a step back, which has already happened. We are already seeing ourselves as a fund looking at popular projects and saying, you know what, not at this valuation,” said Gupta. “Even after we pass them, it’s not like what it used to be, where somebody else will just come and give them high valuation.”
Read: Dow books 4th day of gains, stocks rally after Fed minutes signal flexibility on interest rate hikes
Also read: This 24-year-old quit his job at hedge-fund powerhouse Citadel to build anew on the Terra blockchain — which collapsed two months later
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Frances Yue covers the cryptocurrency market for MarketWatch.
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