Bitcoin Lingers Near September Lows Amid Drop of 40% From Record

(Bloomberg) — Bitcoin is trading near its lowest since September after an early fainting extended its weeks-long decline from an all-time high to around 40%.

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The largest cryptocurrency by market cap fell 4.9% to $41,008 before halting the decline during US trading hours. It hit a record high of almost $69,000 on November 10th. Ether, the second largest, fell as much as 9% to its lowest level since September 30. XRP is down more than 10% in the past seven days, according to CoinGecko.

“Bitcoin and cryptocurrencies are acting as risky assets at the moment,” said Kaley Cox, investment analyst at eToro. “Bitcoin is seen by investors as a game on the economic outlook, which is very ambiguous at the moment.”

The pullback comes minutes after the Federal Reserve’s December meeting, which was published on Wednesday, which pointed to the opportunity to raise interest rates earlier and faster than expected as well as potential ruin on the balance sheet.

“The Fed’s intent to shrink the balance sheet in the first quarter of 2022 is the main reason for this aggressive selloff,” Fundstrat strategists said in a note Thursday. “Unfortunately, there does not appear to be immediate potential support before the September 2021 lows at $39,573, with a break of that drop to last summer’s low in May and July.”

Risky assets including US stocks fluctuated on Friday in choppy trading while Treasuries fell as investors evaluated employment data showing a rise in wages paid that could force the Federal Reserve to speed up its rate hike schedule.

Bitcoin gained about 60% last year, outperforming other asset classes amid a narrative that included institutional adoption, inflation protections, and investment diversification. It has struggled in recent weeks, though, amid a volatile period for financial markets. High inflation has prompted central banks to tighten monetary policy, threatening to reduce the liquidity tailwind that has lifted a wide range of assets.

“As the crypto market matures, we can see major crypto assets like Bitcoin and Ethereum increasingly moving in tandem with traditional markets including Treasuries,” said Ben Caslin, head of research and strategy at crypto exchange AAX.

Taking into account the declines too, according to Todd Morakis, co-founder of digital finance services and products provider JST Capital: turmoil in Kazakhstan, where a large number of crypto-mining went after China’s crackdown on the practice, already affected by recent power supply problems in country.

Bitcoin’s hash rate, a measure of the network’s computing power, fell to 176 million terahashes on Thursday from a record high of about 208 million on January 1, according to data from Blockchain.com.

However, there were signs of a possible rebound: Hayden Hughes, CEO of Alpha Impact, a social trading platform, said his client base was “build up significantly” on the Asian morning, despite his strong preference for Ether over Bitcoin. Jeffrey Haley, chief market strategist at Oanda Asia-Pacific, noted that the Relative Strength Index, or RSI, is “well oversold” and wouldn’t be surprised to see a bounce back to $45,000.

But on weekends, when liquidity is poor and exacerbating price movements, there is a risk of ups and downs.

Anthony Trenchev, co-founder of crypto lender Nexo, said a bitcoin break below $41,000 “could get ugly, as mid to lows in the 30s are a potential destination.” He added that Bitcoin endured a two-month period of consolidation in the $30,000-$40,000 range from May to July last year, and “a repeat of history cannot be ruled out as Fed tightening remains the common narrative.”

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