Casey Wagner

<div id="highlights-block_630911f69039f" class="highlights">
 <ul>
 <li>Equities and cryptos plunged lower Friday in the aftermath of Jackson Hole</li>
 <li>Bitcoin especially is trading like a big tech stock, analysts say, and until there is a change in macro conditions, this will continue</li>
 </ul>
 
</div>



Markets extended declines Friday after Federal Reserve Chairman Jerome Powell took a more hawkish stance during his Jackson Hole remarks. Cryptocurrencies slipped further into the red as traders became increasingly discouraged by the Fed’s likely move in September.&nbsp;



The S&amp;P 500 and Nasdaq were trading 2.3% and 2.8% lower, respectively, at time of publication. Bitcoin and ether similarly lost 4% and 7%, respectively.&nbsp;



“Today&#8217;s reaction to Fed Chairman Powell&#8217;s speech at Jackson Hole is somewhat surprising, as he did not really say anything new, at least to Fed watchers, and markets had appeared to have largely priced in a 75 basis point rate hike,” Bill Cannon, head of portfolio management at digital asset fund manager Valkyrie Investments, told Blockworks.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Powell has been transparent through his comments recently that rate hikes were needed to cool inflation, and today&#8217;s statement reinforced this strategy,” Cannon said.</blockquote>



Cryptos have struggled to turn around this year. Bitcoin and ether are both down more than 50% year-to-date, and without a significant shift in macroeconomic conditions, analysts are not expecting a rally.&nbsp;



“With inflation, unfortunately bitcoin acts like a tech stock,” Patrick Feeney, former hedge fund trader and founder of Feeney Factor, said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“[Bitcoin is] supposed to be digital gold, but it&#8217;s just not panning out that way lately,” Feeney said.&nbsp;</blockquote>



<h3 class="wp-block-heading">Bitcoin correlation and market expectations</h3>



Bitcoin’s correlation coefficient with the S&amp;P 500 hit 0.64 in early May before falling to around 0.4 earlier this month, according to <a href="https://charts.coinmetrics.io/correlations/#435" target="_blank" rel="noreferrer noopener">data</a> from Coin Metrics. A coefficient of 1 means the assets are moving perfectly in sync.&nbsp;



The trend is back on the rise though, data shows, with the correlation coefficient hovering near 0.5 earlier this week.&nbsp;



“For the past year, crypto and equity markets have traded tightly together,” Clara Medalie, strategic initiatives and research director at data provider Kaiko, told Blockworks <a href="https://cms.blockworks.co/bitcoins-correlation-with-stocks-bonds-hits-3-month-low/" target="_blank" rel="noreferrer noopener">earlier this month</a>. “What we’ve seen over the past year is that correlations tend to strengthen around key releases of economic data, such as Fed meeting notes or inflation numbers.”&nbsp;



Recent data, such as plunging unemployment numbers and the <a href="https://cms.blockworks.co/inflation-is-cooling-but-rally-in-crypto-stocks-may-not-last/" target="_blank" rel="noreferrer noopener">latest</a> Consumer Price Index (CPI) report, may suggest that inflation is cooling. The Fed’s preferred measurement of inflation, the Personal Consumption Expenditures price index, which was released Friday ahead of Powell’s remarks, also shows easing prices in July. The year-over-year change for July came in at 6.3%, down from 6.8% in June.&nbsp;



Still, Powell <a href="https://cms.blockworks.co/cryptos-equities-slide-as-traders-unpack-powells-jackson-hole-remarks/" target="_blank" rel="noreferrer noopener">warned Friday</a> there is still a long way to go before sustained price stability is reached.&nbsp;



“Estimates of longer-run neutral are not a place to pause or stop,” Powell said during his speech on the second day of the <a href="https://www.kansascityfed.org/research/jackson-hole-economic-symposium/" target="_blank" rel="noreferrer noopener">Economic Policy Symposium</a>, hosted by the Kansas City Federal Reserve. “Our decision at that September meeting will depend on the totality of the incoming data and the evolving outlook,” he said.



Futures markets now are calling for a 60.5% chance of a 75 basis point rate hike in September, which would mark the central bank’s third consecutive increase of that size, according to <a href="https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">data</a> from CME Group.



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Bitcoin Trading Like Big Tech as Markets Reel

<div id="highlights-block_6308d993120ca" class="highlights">
 <ul>
 <li>Markets erased gains early in the trading day Friday following hawkish remarks from Fed Chair Powell in Jackson Hole</li>
 <li>Analysts were unsure how to interpret the speech, predicting a slightly lower chance of a 75 basis point rate hike in September</li>
 </ul>
 
</div>



Federal Reserve Chairman Jerome Powell took a more hawkish stance Friday morning during his Jackson Hole remarks, sending equities sliding. Crypto markets were mixed as traders continue to speculate what will happen at the next Fed policy meeting in September.&nbsp;



While recent data, such as plunging unemployment numbers and the <a href="https://cms.blockworks.co/inflation-is-cooling-but-rally-in-crypto-stocks-may-not-last/" target="_blank" rel="noreferrer noopener">latest</a> Consumer Price Index (CPI) report, may suggest that inflation is cooling, the central bank head warned that there is still a long way to go before sustained price stability is reached. 



“Estimates of longer-run neutral are not a place to pause or stop,” Powell said during his speech on the second day of the <a href="https://www.kansascityfed.org/research/jackson-hole-economic-symposium/" target="_blank" rel="noreferrer noopener">Economic Policy Symposium</a>, hosted by the Kansas City Federal Reserve.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Our decision at that September meeting will depend on the totality of the incoming data and the evolving outlook,” he said. </blockquote>



Powell’s speech slightly swayed futures markets, which predicted a 54.5% chance of a 75 basis point rate hike in September immediately following the remarks, according to <a href="https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">data</a> from CME Group. In the days preceding the Jackson Hole meeting, the probability of a third consecutive 75 basis point increase sat at 58.5%. 



The S&amp;P 500 slipped following the speech, losing 1%. The tech-heavy Nasdaq also lost, trading 1% lower at time of publication. Bitcoin and ether declined as well, losing 0.4% and 1%, respectively.



“Fed Chairman Powell&#8217;s comments sent an initial chill through the markets, with them selling off on the insistence that the central bank will keep hiking rates until he feels inflation is under control,” Josh Olszewicz, head of research at digital asset fund manager Valkyrie Investments, said.



“Powell&#8217;s admission that there will be pain before there is relief is rather hawkish, but both equities and crypto assets showed surprising resilience by rebounding rather quickly, which can be interpreted as evidence that the next rate hike is likely already priced in,” Olszewicz said.



Even as futures markets remained mixed, Olszewicz is betting markets will take a hawkish interpretation of Powell’s remarks. He predicts another 75 basis point rate hike in late September, which he expects markets will largely have already priced in.&nbsp;



“[I] do not expect there to be a drastic effect on the markets should that come to pass, followed by successive rate hikes until inflation is reigned in and the unemployment rate returns to a healthier number,” Olszewicz said.



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Cryptos, Equities Slide as Traders Unpack Powell’s Jackson Hole Remarks

<div id="highlights-block_63066f1ccb696" class="highlights">
 <ul>
 <li>Markets have found reprieve from their recent tumbles ahead of Jerome Powell&#8217;s speech on Friday</li>
 <li>The market is spilt on what the outcome of September’s Federal Open Market Committee may be </li>
 </ul>
 
</div>



The <a href="https://cms.blockworks.co/crypto-prices-collapse-across-the-board-dragged-by-bitcoin-and-ether/" target="_blank" rel="noreferrer noopener">recent slide</a> in markets saw some relief Wednesday, as both stock and crypto traders speculate about what central bankers may come away with after this week’s Jackson Hole symposium. 



Equities managed to stay in the green during Wednesday’s trading session, with the S&amp;P 500 ticking as much as 0.8% higher and the Nasdaq gaining 1%. After three days of declines, it was a welcome, albeit minor, reprieve.



Leading crypto assets bitcoin and ether also edged higher, respectively gaining 1.2% and 0.8% as of 2 pm, ET, with Fed Chair Jerome Powell due to present at Jackson Hole in two days.



“We are at an inflection point for the mega-cap trade as hedge funds position themselves for further weakness in bonds and a much weaker consumer as the economy slows,” Edward Moya, senior market analyst at Oanda, said.&nbsp;



“Today’s rebound is small and on light volume, which means most traders are playing the waiting game until Fed Chair Powell’s Jackson Hole symposium speech.&#8221;



The <a href="https://www.kansascityfed.org/research/jackson-hole-economic-symposium/" target="_blank" rel="noreferrer noopener">Economic Policy Symposium</a>, hosted by the Kansas City Federal Reserve, will kick off Thursday. Powell is slated to speak Friday, and markets might be caught off guard, analysts say.



“Fed Funds Futures and Treasuries say [Powell’s] Jackson Hole speech will lean hawkish, with a commitment to several more rate hikes and no discernible hint of a ‘pivot’ in the first half of 2023,” Nicholas Colas, co-founder of DataTrek Research said. 



“With the VIX at 24, US stocks may not yet have fully embraced this eventuality.”



Futures markets are showing a 58.5% chance of a 75 basis point rate hike at the next policy meeting in September, according to <a href="https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">data</a> from CME Group. There is a 41.5% chance of a 50 basis point increase. 



Even as markets are fairly evenly split between 50 and 75 basis points, economists are not expecting rising rates to stop in September. 



Dan Morehead, CEO and chief investment officer at <a href="https://cms.blockworks.co/pantera-capitals-blockchain-fund-has-1b-in-commitments/" target="_blank" rel="noreferrer noopener">Pantera Capital</a>, sees Fed Funds rates hitting at least 4% or 5% before the central bank switches strategy. 



“You can’t tame runaway inflation with Fed Funds 600 basis points lower than inflation,” Morehead wrote in a note Wednesday. “The Fed will be forced to tighten much more than the markets currently forecast.”



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



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jackson hole