Bitcoin and Other Cryptos Rebound as Investors Return to Risk Assets

Recover

Bitcoin and other prominent cryptocurrencies suffered significant losses Thursday but started to recover since Friday.

However, US investors appeared to buy the drop since it appeared as though Russia's sanctions would have little effect on the broader macroeconomic picture. The rise was led by technology equities, which, like cryptos, are extremely sensitive to market mood. The Nasdaq composite index closed Thursday 3.3 percent higher after beginning almost as much in the red and plunging into the bear market territory.

Notably, Russian oil has not been sanctioned; doing so would risk exacerbating already-high oil prices and might result in an additional jump in inflation, pressing central banks such as the Federal Reserve to hike interest rates more forcefully. Tightening monetary policy has been a significant headwind for equities and cryptocurrencies thus far in 2022, so any indication that the Fed will remain aggressive can be interpreted positively.

Bitcoin and its counterparts should, in principle, trade independently of traditional financial markets. As with stocks, however, the likelihood of increasing interest rates as a result of central bank policy and a general "risk-off" atmosphere in recent months, exacerbated by the Ukraine crisis, has thrown the market off balance.

"Bitcoin is acting as the ultimate risky asset," according to Edward Moya, an analyst at broker Oanda. "If Bitcoin can maintain its $30,000 level in the short term, it indicates that investors remain optimistic about the economic outlook and that risky assets should stabilize once the impact of the Russian/Ukrainian conflict is better understood."