Cryptocurrency prices were falling on Wednesday as tumbling retail stocks and inflation fears battered Wall Street.
Bitcoin was down about 4% to $28,998, and down nearly 60% from its Nov. 10 high of $69,044.77.
Ethereum lost 4.5% to $1,961 and dogecoin was off 4.7% to $0.085271 at last check, according to CoinGecko.
Hawkish Comments From Fed
Cryptocurrencies and the stock market used to operate independently, allowing investors to move their assets from one to the other depending upon which of the two was moving higher.
The arrangement has come undone, however, and both markets were falling on May 18.
The Dow Jones Industrial Average was down over 1,000 points, or 3.2%, recently as Target missed Wall Street's first quarter earnings estimates, one day after after Walmart (WMT) - Get Walmart Inc. Report posted weaker-than-expected fiscal-first-quarter earnings and reduced its full-year profit forecast.
"The narrative is shifting from inflation scare to recession scare on the heels of hawkish comments yesterday from Fed chairman, Jerome Powell, which is further dampening risk appetite," said Cliff Hodge, chief investment officer, Cornerstone Wealth. "Getting inflation under control is clearly top of mind at the Fed, but ultimately we think the Fed’s bark is going to be stronger than the bite."
'More Volatility Likely Over the Summer'
Powell said the Fed was determined to reduce inflation and reiterated that it hoped to do so without prompting a jump in joblessness.
The Fed is aggressively raising rates to reduce price pressures. Powell signaled that in both June and July, the central bank likely would repeat the half-percentage-point rise in rates it put in place early this month.
Hodge said the market has "already done a lot of heavy lifting tightening financial conditions."
"Once we get evidence that inflation cools, allowing the Fed to pivot dovishly, conditions will be ripe for a risk-on rebound," he said. "We just have to make it through to the other side first, which means more volatility is likely over the summer."
Crypto prices have also been hammered by volatility among so-called "stablecoins," which were considered a steadier and safer bet.
A stablecoin is a digital currency whose value is pegged to a fiat currency like the euro or the dollar.
The goal is to offer investors a way to buy cryptocurrencies that are supposed to be stable, unlike bitcoin or ether, since they are in fact dependent of the fiat currency to which they are pegged.
Cryptocurrency prices were pummeled when the stablecoin UST and its sister coin Luna lost nearly all their value.
UST and Luna are the main tokens of the Terra protocol, a decentralized and open-source public blockchain protocol for so-called algorithmic stablecoins, which are backed by a computer code instead of traditional collateral like cash
UST lost its dollar peg when millions of investors all wanted to redeem their tokens at the same time.
The market discovered that the UST reserve mechanism was fallible.
UST is an algorithmic stablecoin. It is backed not by dollar reserves but rather by its sister asset Luna, which had to be burned, or permanently destroyed, through a computer code.
The two cryptos took a massive blow when crypto exchanges Binance and OKX decided to delist them in order to protect their customers.