Cryptocurrencies led by bitcoin and ether slumped as part of the broader tech selloff, cementing their status among investors as risky assets quickly dumped in moments of market stress.
The falls were triggered by Federal Reserve minutes that showed officials are eyeing a faster timetable for raising interest rates this year. As rates rise, holding volatile investments that produce little income becomes less attractive compared with government bonds.
Bitcoin has declined about 6% since the release of the December Fed minutes on Wednesday and recently traded at $42,865.48. Ether, the world’s second-largest cryptocurrency by market value, has fallen about 9% since the release. That leaves bitcoin near its lowest 5 p.m. ET level since late September and far off highs hit in November.
“This is proof that bitcoin acts like a risk asset,” said Noelle Acheson, head of market insights at crypto lender Genesis Global Trading. “The short-term holders, they are the ones who are trading and will be closest to the exit.”
Bitcoin’s market is divided among long-term holders who see the digital currency, which is mined by computers, as a store of value, and hedge funds and other money managers who view it as a way to make money in times of market exuberance, Ms. Acheson said.
Cryptocurrencies, like other speculative assets such as tech stocks, have performed well over the past two years in an environment of superlow interest rates.
Bitcoin’s dollar value neared $70,000 last November as broader markets rallied and traders bet that the first U.S. exchange-traded fund linked to the cryptocurrency would pull in new investors who would push the price of bitcoin even higher. Since then, bitcoin’s rally has cooled, edging down at the end of last year.
“It had been range bound and seemed to be waiting for a catalyst one way or another, and the hawkish Fed was the catalyst,” said
Craig Erlam,
senior market analyst at trading firm Oanda.
Bitcoin and other cryptocurrencies are notoriously volatile and often gyrate on news of them being accepted in mainstream parts of the economy, rumors or pronouncements from celebrities.
Last year,
’s purchase of bitcoin and the stock-market debut of cryptocurrency exchange
both boosted bitcoin’s price.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
