Bitcoin falls to the lowest level since the December flash crash as the growing expectation of rising borrowing rates weighs on some of the best-performing assets in recent years.
The largest cryptocurrency by market value fell as low as $42,505 in early Asian trading Thursday. That took the price to its lowest level since a weekend slump early last month, when it hit $42,296. Bitcoin has risen about 500% since late 2019, driven by stimulus measures put in place during the Covid 19 pandemic.
Other cryptocurrencies also plummeted. Ether, the number two cryptocurrency by market value, took its own flash crash low, reaching prices not seen since October 13, and Binance Coin also fell to October levels. Tokens from popular DeFi applications such as Uniswap and Aave fell.
“Given the current macroeconomic backdrop, leverage within the bitcoin market, and recent robustness in the altcoin market, we believe an overweight to Ethereum and other smart contract platforms is appropriate,” Fundstrat digital asset strategists Sean Farrell and Will McEvoy wrote in a note Wednesday. “We probably would not bet on bitcoin in the short term, but think there is an opportunity to bet on volatility via derivatives strategies.”
The recent fluctuations in cryptocurrencies come amid a volatile time for financial markets. Rising inflation is forcing central banks to tighten monetary policy and threatens to reduce the tailwinds of liquidity that have buoyed a wide range of assets.
U.S. equity markets posted further losses after Federal Reserve meeting minutes hinted at the possibility of earlier and faster rate hikes. The S&P 500 fell 1.9%, led by real estate stocks, while the tech-heavy Nasdaq 100 slid 3.1%. The stock losses spread to Asia Thursday morning.
“The Fed is aggressive,” said Stephane Ouellette, chief executive, and co-founder of crypto platform FRNT Financial Inc. “Knee-jerk reactions to cryptocurrencies tend to treat them as pure risk assets, despite longer-term trends around inflation, store of value, and so on.”
Other sectors of the crypto world are also under pressure. Bitcoin mining stocks took a beating as analysts rethink their forecasts after a record-breaking year.
Bitcoin had climbed to a record high of nearly $69,000 in early November after U.S. regulators approved bitcoin futures-based exchange-traded funds.