The Federal Reserve just raised interest rates by 0.75%. Here's why that's terrible for crypto.

The Federal Reserve just raised interest rates by the single largest amount since 1994.

Why is this bad for crypto? Because since it's became popular recently, crypto currency is now heavily correlated with regular public markets, and specifically bitcoin has a 0.9 correlation with the NASDAQ.

In public markets, as interest rates rise, the increased cost of borrowing strips valuations from growth companies, because a lower cost of borrowing prioritises companies who are expected to become big in the future versus the here-and-now. Cryptocurrency returns are very much linked with the unprofitable tech-growth firms that have seen massive valuation increases over the past 5-10 years.

Now this announcement isn't fully unexpected. Ever since the inflation print came out higher than expected last week, markets have priced in a very large rate hike as well as possibly more rate hikes to come in the future. This is the main reason why crypto has been down bad recently.

You see, the markets aren't moved by you and I anymore. They're moved by massive institutions with millions invested. And to them, crypto is a risk asset much like growth stocks, but they're the biggest risk asset they've possibly ever taken on. So when investors become bullish, crypto is the first thing they're going to strip from their portfolios.

So when people talk about this being the bottom, please understand that we are in a completely new environment economically than we were just a few months/years ago. We could see crypto at depressed valuations until the end of this current hiking cycle - which may take years.