a story that won’t change soon

Key Takeaways

• Bitcoin led markets on a ride Wednesday, surging from $28K to $30K before shedding 7% in an hour
• Surge had come following optimism for liquidity injection from Fed, as banking issues resurfaced at First Republic and shares cratered 50% 
• Markets are too thin and prone to these large price swings, writes our Head of Research, Dan Ashmore 
• Highlights how dangerous the sector can be in the short term, he says, warning enthusiasts to be careful

I wrote a few days ago about the state of crypto markets, warning that volatility was incoming following an unusually calm period for digital assets. 

Last night that volatility came, and it came hard. It doesn’t make me a genius, as the timing was nothing more than blind luck, but it does demonstrate my point. The crypto markets are currently highly sensitive, even more so than usual, and that won’t change anytime soon. 

On Wednesday morning, Bitcoin jumped from $28,300 to close to $30,000 in the space of a couple of hours. This came as First Republic Bank announced it had been subject to $100 billion of withdrawals last quarter, its share price tanking 50%. 

Despite what enthusiasts may argue, crypto did not rise because the fiat world is collapsing, the banking sector going the way of the T-Rex and the dodo bird. Some decried crypto as a store of value outside of the creaking system, scooping up panicking investors fleeing the fiat world. 

Sure, in the long term, there could be discussion to be had here, but that is for another day. Instead, it appears likely that coins surged in anticipation of more liquidity injections from the Federal Reserve. 

In other words, crypto did what it has been doing all year: moved in response to expectations around the future path of monetary policy. A quick look at Bitcoin’s correlation with the Nasdaq shows this, now at a near-perfect 1 on a 90-day rolling basis, should affirm this. Bitcoin, and crypto as a whole, continues to trade like a highly risky tech stock. 

But back to volatility. After the surge Wednesday morning, Bitcoin then plunged from $29,700 to $27,700, a 7% red candle in a little over an hour. As of Thursday morning, it is back at $29,000, as it reverberates all over the place, struggling to make up its mind.  

Rumours swirled around the possible movement of Mt Gox coins, while some pointed to the apparent…