Cryptocurrencies led by bitcoin and ether slipped as part of a broader tech sell-off, cementing their position among investors as risky assets quickly got dumped in moments of market stress.
The declines came due to the Federal Reserve’s meeting minutes, which showed officials are looking at a faster schedule for raising interest rates this year. As interest rates rise, holding volatile investments that produce little income becomes less attractive compared to government bonds.
Bitcoin is down about 6% since the minutes of the Federal Reserve’s December meeting were released on Wednesday and most recently traded at $42865.48. Ether, the world’s second largest cryptocurrency by market capitalization, has fallen about 9% since the launch. This leaves bitcoin near the lowest level at 5 PM ET since late September and well off the highs it hit in November.
“This is evidence that bitcoin is operating as a risky asset,” said Noel Acheson, head of market insights at crypto lender Genesis Global Trading. “The short-term owners, are the ones who trade and will be the closest to the exit.”
The bitcoin market is divided between long-term holders of the coin who see the digital currency, which is mined by computers, as a store of value, and hedge funds and other money managers who see it as a way to make money in times of abundance in the market, Acheson said.
Cryptocurrencies, as well as other speculative assets such as technology stocks, have done well over the past two years in an environment of extremely low interest rates.
The dollar value of Bitcoin approached $70,000 last November as the broader markets rebounded and traders bet that the first US-traded fund linked to the cryptocurrency would attract new investors who would push the price of Bitcoin higher. Since then, bitcoin’s rally has slowed, falling at the end of last year.
“It was range bound and seemed to be waiting for a catalyst one way or another, and a hawkish Fed was the catalyst,” said Craig Erlam, chief market analyst at trading firm Oanda.
Bitcoin and other cryptocurrencies are notorious for volatility, and you will often be alerted to news of their acceptance in key parts of the economy, rumors or statements from celebrities.
Last year, Tesla Inc.
Buying Bitcoin and Debuting on the Cryptocurrency Exchange Coinbase Global Inc.
Both boosted the price of Bitcoin.
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