BTC just below $43k, ETH at $2.3k as risk-off sentiment grows

Cryptocurrencies and stocks posted a mild rebound Thursday after Federal Reserve Chair Jerome Powell signaled to markets that a rate hike is likely not coming until later this spring.

Powell, during remarks given after the central bank announced it would be holding interest rates at their current level Wednesday, said an “unexpected weakening” in the labor market is one of the only instances that would result in a rate cut sooner than expected.

Markets dipped during Powell’s press conference — the S&P 500 and Nasdaq Composite indexes lost 0.9% and 1%, respectively, within an hour — but recovered Thursday to around pre-rate decision levels.

“This suggests trader conviction that rates will be coming down sharply, despite what Chair Powell said,” Noelle Acheson, author of the “Crypto is Macro Now” newsletter, said.

Markets are still predicting a 40% chance the central bank will cut rates in March and a 58% chance the first decrease will come in May.

“Given that Futures actually increased the odds of rate cuts this year despite Powell’s comments, and US equities sold off by over 1.5%, it seems clear that markets believe the Fed is about to make a policy mistake by keeping rates too high for too long,” Nicolas Colas, co-founder of DataTrek Research, said.

Stocks also struggled Wednesday following earnings from New York Community Bancorp, which showed an unexpected loss and dividend cut. The news renewed skepticism that the banking system remains strong and pushed traders into risk-off territory.

The Federal Open Market Committee in their statement Wednesday also notably cut a line they have been touting since March 2023: “The US banking system is sound and resilient.”

Bitcoin and ether similarly shifted lower Wednesday, likely also due to risk-off sentiment, but were on a modest recovery path Thursday. Bitcoin (BTC) was trading 0.2% higher and ether (ETH) gained 0.6% Thursday afternoon in New York.

It is worth noting though, Acheson said, that bitcoin spiked during the banking crisis of 2023 as investors leaned into the “alternative” narrative.

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