Bitcoin

BTC
and cryptocurrency prices have fallen along with stock markets this year as investors brace for a more hawkish Federal Reserve (with one investor’s top “contenders” for the title of the world’s dominant cryptocurrency taking many by surprise).

Subscribe now to Forbes’ CryptoAsset & Blockchain Advisor and successfully navigate the volatile bitcoin and crypto market

The bitcoin price has lost around 40% from its peak of almost $70,000 per bitcoin late last year with the ethereum price also down by nearly half. Other major coins—including Binance’s BNB

BNB
, Ripple’s XRP

XRP
, solana, cardano, Terra’s luna and avalanche—have also plunged, wiping $1.2 trillion from the combined crypto market in a matter of months.

Now, after Federal Reserve chair Jerome Powell signaled a half percentage point interest rate hike is on the table at next week’s meeting, the market is braced for the central bank to begin shrinking its huge $9 trillion asset portfolio as it battles soaring inflation.

Want to stay ahead of the market and understand the latest crypto news? Sign up now for the free CryptoCodex—A daily newsletter for crypto investors and the crypto-curious

MORE FROM FORBES‘World’s Dominant’ Coin-Legendary Bitcoin ‘Whale’ Reveals His Surprise Top Three Crypto Picks As Price Volatility Hits Ethereum And OthersBy Billy Bambrough

“Macro uncertainty has driven all risk-on assets downwards over the last few months, including bitcoin,” Joe Haggenmiller, head of markets at leading crypto finance company XBTO Group, said in emailed comments.

“Price volatility in the bitcoin market over the last few weeks can be attributed largely to its correlation to other risk assets, which in general have been moving in reaction to conflict in Ukraine, supply chain issues due to rising Covid cases in China, and ongoing interest rate hikes and future balance sheet machinations by the Federal Reserve.”

Early in the Covid-19 pandemic, the Federal Reserve began an unprecedented stimulus program that saw its balance sheet double and interest rates fall to historic lows as it flooded markets with cash in an effort to offset the economic damage of Covid-19 and lockdowns. As the pandemic has begun to recede and inflation has spiked, the Fed has pivoted to trying to cool the economy.

“It is appropriate in my view to be moving a little more quickly [than the Fed has recently],” Powell said last week, speaking after a panel discussion with European Central Bank President Christine Lagarde hosted by the International Monetary Fund, adding he thinks “there’s something in the idea of front-end loading” those moves.

However, economic data has this week shown the U.S. economy shrank in the first three months of the year, contracting by 0.4% in the first quarter, its weakest quarter since the early days of the pandemic.

“This is bullish for risk assets like bitcoin and equities in my opinion, as the Federal Reserve may become less hawkish to avoid a recession,” Marcus Sotiriou, an analyst at the U.K.-based digital asset broker GlobalBlock, wrote in an emailed note.

Bitcoin, crypto and stock market traders are watching carefully for any sign the Fed will stray from its telegraphed move when it meets this week.

“An increase higher than 50 basis points, deviating from the current consensus, may lead to a drop in risk markets including bitcoin,” added Haggenmiller. “Regardless, the bitcoin market has proved to be relatively resilient in the long term throughout periods of uncertainty.”

Sign up now for CryptoCodex—A free, daily newsletter for the crypto-curious

MORE FROM FORBESThis Surging New Cryptocurrency Could Rocket Higher On ‘NFT Hype’ Price Prediction Reveals-As Bitcoin And Ethereum CrashBy Billy Bambrough

Meanwhile, the bitcoin and crypto community has cheered a series of positive developments this week, including Central African Republic becoming the second country after El Salvador to adopt bitcoin as legal tender and investment giant Fidelity announcing the launch of 401k bitcoin accounts.

“Recently, bitcoin has reached a new phase of mainstream adoption: companies and countries are now integrating bitcoin without waiting for bitcoin’s price to skyrocket,” Alex Adelman, the chief executive of bitcoin rewards app Lolli.

“This lack of correlation between price moves and increasing mainstream adoption demonstrates that more institutions are grasping bitcoin’s immense utility as a currency and store of value and its inevitable, powerful role in our financial future.”