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Bitcoin prices fall through the key $45,000 level.
Dreamstime
Bitcoin
and other cryptocurrencies tumbled Thursday as traders dumped digital assets in the face of expectations that the Federal Reserve would aggressively tighten monetary policy, limiting investors’ appetite for risk.
Bitcoin, the leading cryptocurrency, fell more than 4% over the past 24 hours to below the key $45,000 level, holding above $43,300. A rally more than a week ago carried the biggest digital asset above $45,000 for the first time since January — a level it had managed to defend, recently going as high as $48,000.
“Bitcoin could see weakness towards the $40,000 level, with the $38,000 level providing major support,” said Edward Moya, an analyst at broker Oanda, in a note late Wednesday.
Bitcoin’s smaller peer,
ether,
also was lower. The token underpinning the Ethereum blockchain network tumbled 4% to around $3,200, having traded above $3,500 earlier in the week.
Bitcoin and ether remain well off all-time highs of $68,990 and $4,865, respectively, reached early last November.
Smaller cryptos, or “altcoins,” also felt the pain.
Solana
fell 8% and
cardano
and
litecoin
both lost around 6%.
“Memecoins”— called that because they were initially intended as internet jokes rather than significant blockchain projects — were similarly in the red, with
dogecoin
dropping almost 9% and
shiba inu
down 6%.
Weakness in cryptocurrencies largely matched action in the stock market. Theoretically, bitcoin and other digital assets are supposed to trade independently of mainstream financial markets but have shown themselves to be correlated to other risk-sensitive assets like tech stocks. The technology-focused
Nasdaq Composite
retreated 2.2% on Wednesday.
In focus is a shift in monetary policy from the Federal Reserve. The central bank is expected to raise interest rates many times across the next year and reduce the size of its balance sheet as it fights historically high inflation. Higher borrowing costs would dent economic demand and could dampen the sentiment for risk assets like bitcoin.
Minutes from the March meeting of the Federal Open Market Committee (FOMC) — the Fed’s monetary policy group — showed officials at the central bank see a half-percentage point rate increase as a strong possibility soon. The Fed raised rates by a quarter-point in March. The minutes, released Wednesday, also showed that the Fed was likely to cut down the size of its balance sheet by reducing its bond holdings in the near future.
“Bitcoin is trading like a risky asset, trading lower alongside equities as Treasury yields surge. Following the Fed’s minutes, bitcoin extended declines after no dovish surprise emerged,” said Moya. “The Fed’s gonna be aggressive here and that is going to be short-term trouble for risky assets like bitcoin.”
However, there remain reasons for optimism.
Analysts at cryptocurrency exchange Bitfinex said in a note Wednesday that “the trend of range-bound trading appears to remain in place as on-chain data show that overall buying activity remains positive.”
U.S. Treasury Secretary Janet Yellen will give her first official speech on digital assets later on Thursday, which could also be a catalyst for further price action. The crypto space will be closely watching for signs that emerging digital asset regulation will be supportive of the industry.
Write to Jack Denton at jack.denton@dowjones.com
