The largest cryptocurrency fell as much as 4.9 percent to $41,008, a drop of about 40% from its record high near $69,000 set on Nov. 10. Ether, the second-largest cryptocurrency, fell as much as 9% to its lowest level since September 30 2021. According to CoinGecko, both of these tokens, as well as others like Binance Coin, Solana, Cardano, and XRP, have lost more than 10% in the last seven days.
The retreat follows the release on Wednesday of minutes from the Federal Reserve’s December meeting, which hinted at the possibility of rate hikes earlier and quicker than expected, as well as a potential balance-sheet drawdown.
“The primary cause of this sell-off is the Fed’s aim to decrease the balance sheet in Q1 2022,” Fundstrat strategists wrote in a report on Thursday. “Unfortunately, there appears to be no immediate support ahead of the September 2021 lows of $39,573, with breakdowns of that leading down to the May-July bottom last summer.”
Last year, Bitcoin outperformed other asset classes by around 60%, thanks to a story that featured institutional acceptance, inflation protection, and investment diversification. However, it has struggled in recent weeks, as financial markets have been unpredictable. Inflation is rising, prompting central banks to tighten monetary policy, perhaps reducing the liquidity tailwind that has boosted a variety of assets.
According to Todd Morakis, co-founder of digital-finance product and service provider JST Capital, the unrest in Kazakhstan, where a large number of crypto-mining operations had fled following China’s crackdown on the practice, and which had already been impacted by the country’s recent power-supply problems, is also contributing to the declines.
According to data from Blockchain.com, the Bitcoin hash rate, a measure of the network’s computing power, fell to 176 million terahashes on Thursday, down from a high of around 208 million on Jan. 1.
Despite this, there were signals of a possible recovery: Hayden Hughes, CEO of Alpha Impact, a social-trading platform, said his customer base was “accumulating heavily” in the Asia morning, with a clear preference for Ether over Bitcoin. And, according to Jeffrey Halley, senior market analyst at Oanda Asia-Pacific, the relative strength indicator, or RSI, is “highly oversold,” and a bounce back to $45,000 isn’t out of the question.
According to Antoni Trenchev, co-founder of crypto lender Nexo, a breach of Bitcoin’s price below $41,000 “may turn ugly, with the mid-to-low thirties a possible destination.” From May to July last year, Bitcoin saw a two-month period of consolidation in the $30,000 to $40,000 range, and “a replay of history can’t be ruled out as Fed tightening remains the popular narrative,” he said.