Bitcoin continues to lose ground as minutes from the Federal Reserve’s December meeting released earlier this week flagged the chance of a faster policy tightening.

The leading cryptocurrency fell to $41,012 during Friday’s Asia session, hitting the lowest level since Sept. 29 and taking the weekly decline to 12%, CoinDesk data show.

The downward move gathered pace on Wednesday after the Fed minutes revealed policymakers discussed aggressive interest rate hikes alongside a faster pace of balance sheet normalization, dubbed quantitative tightening (QT) – the opposite of liquidity-boosting balance sheet expansion. The hawkish tone took a toll on equities, with tech stocks bleeding for the second consecutive day on Thursday.

“Bitcoin has been trading as a risk-of/risk-off asset lately and seems to be tracking equities lower,” Jeff Dorman, CIO at Arca, told CoinDesk in a Telegram chat.

Laurent Kssis, a crypto exchange-traded fund (ETF) expert and director of CEC Capital, said about $200 million in long positions have been liquidated in the past couple of hours, pushing the spot price lower. Kssis added that leverage remains high and a further drop below $40,000 may be seen, more so if bond yields continue to rise on the Fed’s hawkish stance.

The popular narrative is that Fed’s plans to shrink its balance sheet and raise rates concurrently could lead to prolonged asset price deflation.

“It’s time to evaluate the conviction you have in whether positive interest rates could damage equity portfolio and see further global downward pressures,” Kssis said. “A 60/40 equities-to-bonds portfolio mix means that if the 60% in equities declines, big fund managers automatically sell bonds to maintain the ratio.”

“So if the Fed allows equity prices to fall, it will increase the borrowing costs of the governments because as bond prices fall, yields rise !!! That could trigger more selling in BTC,” Kssis added.

On Thursday, the U.S. two-year treasury yield, which mimics short-term interest rate and inflation expectations better than the 10-year yield, rose to a 22-month high of 0.87%. The short-term yield has more than doubled to 0.76% in the past quarter, according to TradingView. The yields may rise further if the U.S. non-farm payrolls data scheduled for release at 13:30 UTC on Friday show the pace of job additions nearly doubled to 400,000 in December, as expected. That would validate the Fed’s recent hawkish pivot.

According to Brent Donnelly, president at Spectra Markets, the macro story has got worse for crypto in the past few months. “Stay bearish crypto as Fed’s QT plan accelerates. The macro story has got even worse for crypto since I started talking about the crypto bear case in November,” Donnelly said in an analysis note shared on Twitter.

“Markets tend to view QT as the most risk-negative brand of tightening policy from the Fed because it’s the inverse of the aggressive monetary easing that triggers a Pavlovian “BUY EVERYTHING” reaction each time the Fed eases,” Donnelly said.

Some observers suggest otherwise. “The fears of a prolonged bear market in stocks and digital assets might be overblown as historically markets have remained resilient during tightening cycles,” Arca’s Dorman said.

Indeed, bitcoin pretty much remained bid through the major part of the previous tightening cycle that began in December 2015 and ended in December 2018. The cryptocurrency rallied from roughly $350 to nearly $20,000 in the two years to December 2017 before entering a year-long bear market.

Further, stock markets came under pressure in the final quarter of 2018 – after nearly two years of rate hikes, as Dorman said on Twitter.

“Bottom line — the Fed raising rates is not what causes big, long-lasting market selloffs… its AFTER very long Fed hike cycles when markets typically face sustained declines and recessions happen,” Dorman tweeted.

Bottom line — The Fed raising rates is not what causes big, long-lasting market selloffs… its AFTER very long Fed hike cycles when markets typically face sustained declines and recessions happen. httpss://t.co/Fewkn0hZCB

— Jeff Dorman, CFA (@jdorman81) January 7, 2022

Bloomberg’s Mike McGlone foresees bitcoin and crypto benefitting from the tightening cycle. “Expectations for Federal Reserve rate hikes in 2022 may support a win-win scenario for Bitcoin vs. the stock market, McGlone said in a research note published Thursday. “Stretched markets have become common, but commodities and Bitcoin appear to be early reversion leaders. It’s a question of bull-market duration, and we see the benchmark crypto coming out ahead.”