Bitcoin More Vulnerable to Rate Hikes Than Ever, Says Goldman Sachs

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Widespread adoption means bitcoin is more vulnerable than ever to Fed policy, Goldman Sachs said Thursday. Bitcoin fell sharply, along with tech stocks, as investors braced for higher interest rates. Bank analysts believe the Fed could raise interest rates at every meeting this year, a total of seven times.

The widespread adoption of bitcoin has made the cryptocurrency more vulnerable than ever to interest rate increases, Goldman Sachs said, just as the Federal Reserve prepares to raise borrowing costs.

“Over the past two years, as bitcoin has seen wider adoption, its correlation with macro assets has increased,” Goldman’s Zach Pandl and Isabella Rosenberg said in a note Thursday.

They said rising bond yields had hit “frontier” tech stocks in recent weeks, with the tech-heavy Nasdaq 100 index down more than 13% for the year. “Bitcoin and other digital assets likely suffered from the same forces,” they said.

“These assets will not be immune to macroeconomic forces, including central bank monetary tightening.”

Bitcoin has plunged more than 45% since November to $36,419 as markets braced for the Fed to hike rates sharply this year, ending the era of easy money that boosted crypto -currencies and tech stocks in 2020 and 2021.

Traders now expect the Fed to hike interest rates five times this year as the central bank tries to tackle the highest inflation in 39 years. Still, Goldman Sachs strategists think the Fed could actually rise at every meeting this year, in a total of seven moves higher.

The broader cryptocurrency market has grown from a total size of $3 trillion in November 2021 to around $1.65 trillion on Friday, according to Coinmarketcap.

Many investors have started talking about a crypto “winter” – a period when prices fall sharply and don’t recover for a long time. The last such winter saw bitcoin plummet from around $20,000 at the end of 2017 to below $3,000 about a year later.

Read more: Circle founder Jeremy Allaire explains why he thinks bitcoin will eventually overtake gold to hit $1 million – and charts his course to testify before Congress last year as the one of the “adults” of crypto

However, many crypto investors remain bullish on digital assets, and many institutions continue to show interest.

BlackRock, the world’s largest asset manager, filed last week to launch a blockchain and technology exchange-traded fund that would invest in companies involved in the development of crypto technology.

Goldman analysts said, “Over time, the further development of blockchain technology, including applications in the metaverse, could provide a secular tailwind to the valuations of some digital assets.”

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