As I write this at 9 pm ET, on May 5, the price of bitcoin is $36,300. It slid from $39,000 Thursday to below $36,000 at one point, causing a disturbance in the force.  

There were two sharp drops — at 15:00 UTC precisely and 19:00 UTC precisely, with attempts to walk the price back up both times. The last thing you want is to kick off a panic, so there will always be whales in the background trying to lift bitcoin back up when it falters. 

After starting the year at $46,700, bitcoin saw a January sell-off, which pushed the price down to $35,000. Apart from that, the world’s most popular crypto has been trading in a range of around $40,000 — a far cry from its record of $68,990 in November 2021. 

Why did it slip Thursday? Because bitcoin mirrors the stock market, mainly tech stocks. 

On Wednesday, Fed Chairman Jerome Powell said there may be .5% rate increases over the summer, but that officials weren’t considering a .75% increase.  

The momentary glee pushed stocks up on Wednesday, but those gains were erased on Thursday when the Federal Reserve raised its target federal funds rate by half a point — the second increase by the central bank this year.

Stocks tumbled. The Dow Jones fell 3.1%. The S&P 500 fell 3.6%, and the tech-heavy Nasdaq slid 5% — its biggest drop since June 2020.

Bitcoin is down 27% since the beginning of the year — and 47% since it’s November all-time high. Tech stocks have also done poorly this year. Google’s parent company Alphabet lost 20% of its share price, Microsoft is down 17%, and Meta has fallen 34% since the start of the year. 

Are the good times coming to an end? 

Over the last two years, the stock and crypto markets have been able to turn a blind eye to the reality of the pandemic because there was plenty of money flowing into the game to keep things going. 

Stimulus bills approved by Congress beginning in 2020 unleashed the biggest flood of federal money into the US economy ever. Roughly $5 trillion went to households, shops, restaurants, airlines, hospitals, local governments, schools, and other institutions. 

Stimulus checks ($1,200 in April 2020, $600 in December 2020, and $1,400 in March 2021) helped fuel a stock-buying spree — and a crypto buying spree. 

Starting in 2022, government programs meant to invigorate the economy during the pandemic ended. Now, reality is settling in. Americans are starting to think hard about the future. They are taking a good long look at their bank accounts and their budgets. 

The longer the Russia-Ukraine war goes on, the bigger its economic costs will be — and the war is looking like it will drag out for possibly years. 

Inflation is at its highest level since the 1980s, reaching 8.5% in March from a year ago. When I go to the grocery store, I can see the prices going up weekly. Avocados at Trader Joe’s are $2.29! 

Rising food prices are terrifying to a lot of people. Gas prices in parts of the country (California, Nevada) are over $5. It takes a lot of money to fill up the tanks in the SUVs Americans love. 

People are moving away from risky investments — like crypto — and fleeing to safety. They want to make sure they can weather inflation and any future slowdown in the economy. 

So they are putting their money into things like I Bonds right now. Just go to Treasury Direct. You can put $10,000 per year in I Bonds and they are paying 9.62%. That’s a lot safer than bitcoin. 

Of course, it’s not just rising interest rates that are rattling the crypto markets. Bitcoin needs fresh cash to keep prices buoyed, and it’s not clear where that next batch of fresh cash is going to come from. 

I wrote earlier about Grayscale’s Hotel California. The Grayscale Bitcoin Trust (GBTC) arb opportunity that pushed bitcoin to new heights in 2020 and early 2021 has dried up.  

Between January 2020 and mid-February 2021, bitcoin climbed from $7,000 to $56,000. GBTC is now trading at 25% below net asset value, and Grayscale stopped issuing new shares in March 2021. 

Grayscale is pushing for the SEC to convert GBTC into a spot bitcoin ETF to open the gates for more cash to flow into the cryptoverse. But it is doubtful that will happen. 

The SEC has rejected every spot bitcoin ETF to date, and — as I’m sure the commission will recognize — Grayscale can redeem those shares on its own at NAV if it wants.  

And then there’s Tether. On March 11, 2020, when the WHO declared COVID-19 a pandemic, causing a massive sell-off in stocks and crypto, Tether’s market cap was $5 billion. Today, 83 billion tethers are underpinning the price of bitcoin. What’s underpinning tethers?

It’s widely accepted amongst crypto critics that Tether is a fraud. Hindenburg’s Nate Anderson predicted that Tether’s two public faces would end 2022 in handcuffs. 

If you include the 48 billion USDC sloshing around in the crypto markets, I suspect insiders can pump the price of BTC past $50,000 anytime they want with stablecoins — but they don’t because there would not be enough cash in the system to keep up with withdrawals.

The same network effects that pushed bitcoin to its highs can unravel. At some point, people will want to sell their bitcoin for cash — not tethers or USDC. That means someone has to be on the other side of the deal ready to hand over real dollars. 

I don’t think the Big Crash is happening now, but the bitcoin sell-off on Thursday was an indication of just how wobbly things have become. All the conditions are ripe for a collapse in the crypto markets. It’s just a matter of time. 

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