Bitcoin and other cryptocurrencies have been having a dreadful time lately, plummeting across the board amid the deteriorating sentiment in financial markets. Stocks have been hammered since the end of March as worries about the pace of monetary tightening, surging inflation and weakening growth prospects have taken a toll on investors. For crypto markets, it is the end of the easy money era that’s likely mostly behind this latest selloff.

Cryptos increasingly correlated with stocks

The Federal Reserve raised its key lending rate by 50 basis points last week. That was the biggest hike in 22 years and comes less than two months after ending its quantitative easing programme. The rapid switch from ultra-loose policy to a super-aggressive one has jolted markets, sparking a massive round of deleveraging as the excess cash has dried out. This has hurt growth and tech stocks quite substantially, but probably not as much as it has cryptocurrencies – long seen as the riskiest of asset classes by some.

The strong correlation between cryptos and equities in recent months, particularly with high-growth and high-valuation stocks, has underscored Bitcoin’s status as a risk asset, shattering once and for all the myth that digital coins can act as a safe haven during times of turmoil.

That’s not to say that cryptos will never behave independently of stock markets again. Far from it, as their unique attributes are as valid as ever and as recently as the Russia-Ukraine crisis, the conflict generated notable demand for Bitcoin and its rivals. However, Bitcoin’s growing adoption by institutional investors has made it more aligned with broader market trends.

Is Bitcoin’s fate tied to Fed rate hikes?

Hence, its prospects for a meaningful rebound in the near-to-medium term are probably tied to the Fed’s rate path, which in turn will be determined by what happens to inflation. Policymakers and traders alike are hoping that inflation in the US is close to peaking.

Should a peak begin to emerge, that would put an end to the Fed’s constant hawkish tilts. Moreover, there would be greater clarity on what the Fed's terminal rate will be, which has been a great source of uncertainty for the markets.

$30,000 level is looking shaky

However, for Bitcoin, there are many obstacles towards restoring a bullish outlook. The $32,950 area blocked today’s advances, while the 78.6% Fibonacci retracement of the January-March uptrend at $36,221 is another potentially strong resistance point as it’s near the long-term ascending trend line that was recently breached. Higher up, the $39,700 stands in the way of reaching the 50-day moving average just above $41,000, which is needed for eliminating the negative bias.

Bitcoin has already lost more than 50% of its value from its all-time high of $69,000 set in November 2021 and the losses could deepen if the crucial support at $30,000 doesn’t hold. The price already briefly dipped below it earlier today, hitting a near 10-month low of $29,731, but later managed to bounce higher. If the $30,000 support is broken, the next stop for the bears may not come until the 161.8% Fibonacci extension of $23,505.

The RSI suggests a tepid rebound may be underway, but without a strong turnaround in risk appetite, Bitcoin will probably struggle to recoup much of its recent losses.