Goldman Sachs says bitcoin is more vulnerable to Fed rate hikes than ever before, as markets price in 5 increases this year

• Mainstream adoption means bitcoin is more vulnerable to Fed policy than ever, Goldman Sachs said Thursday.
• Bitcoin has fallen sharply, along with tech stocks, as investors have braced for interest rates to increase.

Bitcoin's mainstream adoption has made the cryptocurrency more vulnerable to interest-rate increases than ever before, Goldman Sachs has said, just as the Federal Reserve prepares to hike borrowing costs.

"Over the last two years, as bitcoin has seen wider mainstream adoption, its correlation with macro assets has picked up," Goldman's Zach Pandl and Isabella Rosenberg said in a note Thursday.

They said higher bond yields had whacked "frontier" technology stocks in recent weeks, with the tech-heavy Nasdaq 100 index down more than 13% for the year. "Bitcoin and other digital assets have likely suffered from the same forces," they said.

"These assets will not be immune to macroeconomic forces, including central bank monetary tightening."

Bitcoin has plunged more than 45% since November to $36,419 as markets have braced for the Fed to hike rates sharply this year, bringing to an end the easy-money era that boosted cryptocurrencies and tech stocks in 2020 and 2021.

Traders are now expecting the Fed to hike interest rates five times this year, as the central bank tries to tackle the strongest inflation in 39 years. Yet Goldman Sachs' strategists think the Fed may in fact hike at every meeting this year, in a total of seven upward moves.

The broader cryptocurrency market has plunged from a total size of $3 trillion in November 2021 to around $1.65 trillion as of Friday, according to Coinmarketcap.

Many investors have started to talk of a crypto "winter" – a period where prices fall sharply and fail to recover for a long time. The last such winter saw bitcoin tumble from around $20,000 at the end of 2017 to below $3,000 roughly a year later.

Read more: The Circle founder Jeremy Allaire explains why he thinks bitcoin will eventually surpass gold to hit $1 million — and charts his route to testifying before Congress last year as one of crypto's 'grown-ups'

However, plenty of crypto investors remain bullish about digital assets, and many institutions are continuing to show interest.

BlackRock, the world's biggest asset manager, filed last week to launch a blockchain and tech exchange-traded fund that would invest in companies involved in the development of crypto technology.

Goldman's analysts said: "Over time, further development of blockchain technology, including applications in the metaverse, may provide a secular tailwind to valuations for certain digital assets."