Bitcoin price drop continues as risk-off ripples across markets

Yahoo Finance's David Hollerith details the drops in bitcoin and other cryptocurrencies as crypto market caps have fallen off significantly and future crypto trends could be dependent on the outcome of this week's Fed meeting.

Video transcript

AKIKO FUJITA: --with Bitcoin. And for that, let's bring in Yahoo Finance's own David Hollerith David, in the price action we've been tracking from the weekend all the way into today's activity, we've got to know, what sticks out to you the most? And what's really driving some of this?

DAVID HOLLERITH: Yeah, I'll start with the second question first, what's driving this. It seems like the risk-on story that pinning to the macroeconomic backdrop, meaning cryptocurrencies are trading a lot like technology stocks that are higher up the risk curve, I think that's the majority consensus of what investors and analysts have been saying.

So everyone's sort of looking at this upcoming Federal Reserve meeting that's taking place on Wednesday to see the results of how that might be interpreted. But again, the global market cap of cryptocurrencies has lost $1.43 trillion since its peak earlier in November 2021.

And the correlation between tech stocks and cryptocurrencies has reached a 0.62, which doesn't really have a lot of meaning without context. But to give you an idea, that's sort of the highest correlation we've seen between stocks and cryptocurrencies. So right now, cryptocurrencies are very much trading like risk-on stocks.

Now, why that's the case, we're still not totally sure. It's sort of unclear whether or not investors think that institutions have come in, and they've bought into the asset class, and that has sort of made it like a very risky or more risky technology stock, or if it's because cryptocurrencies act as a kind of inflation hedge, in which case, the Federal Reserve raising interest rates to combat inflation could, in a sense, undercut the narrative for cryptocurrencies.

So we're kind of watching all that development. But as far as the drawdown since Friday and what we're expecting this week, a lot of people have seen that Bitcoin and other cryptocurrencies are a little bit oversold at this point. So there's reason to believe we will see a little bit more of a recovery in the next couple of days. But again, a lot is hinging on the FOMC meeting, which is taking place on Wednesday.