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Bitcoin prices are under pressure.
Dreamstime
Bitcoin
and other cryptocurrencies were falling Wednesday as sentiment for risk-sensitive assets took a hit amid growing expectations that the Federal Reserve would move aggressively to tighten monetary policy this year.
Bitcoin, the leading cryptocurrency, plunged more than 4% over the past 24 hours to below the key $45,000 level, holding above $44,000. A rally more than a week ago carried the biggest digital asset above the $45,000 mark for the first time since January, a level it had managed to defend, recently going as high as $48,000.
“Bitcoin has failed to build on the breakout momentum over the last couple of weeks which may disappoint some but it probably shouldn’t,” Craig Erlam, an analyst at broker Oanda, said in a note late Tuesday. “We’re seeing consolidation across financial markets right now and bitcoin is clearly not immune.”
Bitcoin’s smaller peer,
ether,
was similarly lower. The token underpinning the Ethereum blockchain network tumbled more than 6% to below $3,250, having topped $3,500 on Tuesday.
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 10% and
cardano
and
litecoin
both lost 7%.
“Memecoins”—called that because they were initially intended as internet jokes rather than significant blockchain projects—were similarly in the red, with
dogecoin
down 5% and
shiba inu
falling 7%.
Declines in the digital asset space matched action in the stock market.
Bitcoin and its peers are, theoretically, supposed to trade independently of mainstream financial markets. However, they have shown themselves to be correlated with other risk-sensitive assets like stocks — and especially technology stocks —and were moving lower in line with equities.
Investors were fretting over the prospect of a more aggressive 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. Elevated interest rates would be matched by a rise in bond yields, with higher borrowing costs denting economic demand.
That could hit the tech sector, and cryptos, hard. Tech stocks have valuations that bank on profits years in the future, and higher bond yields discount the present value of future cash. This environment could also dampen sentiment for risk assets like bitcoin more broadly.
“The prospect of continued monetary tightening by the Federal Reserve has unnerved stock market investors that have enjoyed the benefits of accommodative policies from the U.S. Central Bank over the past decade,” a team of analysts at crypto exchange Bitfinex said in a note on Wednesday.
“While bitcoin and the wider cryptocurrency market has dipped (Wednesday) the trend of range-bound trading appears to remain in place as on-chain data shows that overall buying activity remains positive,” they added.
But this week could hold promise for bitcoin and other cryptos. The annual bitcoin conference kicks off in Miami on Wednesday, and analysts have highlighted the event as a catalyst for the largest crypto to test its 200-day moving average above $48,000.
“At last year’s event, the president of El Salvador announced that he would send the bill to the parliament to make bitcoin one of its legal tenders, so the anticipation for a huge, positive announcement is building up and likely coming,” Yuya Hasegawa, an analyst at crypto exchange Bitbank, said in a note on Tuesday.
Write to Jack Denton at jack.denton@dowjones.com
