Cryptocurrency Synchronizes with the Global Market Drop
As trading volumes dry up, potential open interests hinder, and the number of active addresses slumbers, Bitcoin and other cryptocurrencies’ value fell on Thursday, led by the Federal Reserve’s December meeting reaching risk assets worldwide.
According to Coin Metric data, the godfather of all digital assets, Bitcoin, fell by eight percent in 24 hours after it was trading at $43,058.75. The digital asset hit its lowest valuation in a month during its plunge, reaching $42,496.
In parallel, Ethereum also fell by almost 12 percent to hit $3,411.92, as well as Solana, reaching $148.58.
The descend followed Wednesday’s stock fall after the release of minutes from the Fed’s December meeting.
The meeting revealed that the Central Bank (CB) would be dialing down its support on the monetary policy; this includes decreasing the number of bonds held by the bank.
Monetary policies conducted by central banks help modify money supply – usually via open market operations. Suppose a central bank decreases the financial capacity by putting on the market government bonds under a “sale and repurchase” agreement. In that case, the CB will take money from commercial banks in return for the bonds.
The goal is to drive short-term interest rates, leading to the alteration of longer-term rates and economic activity as a whole. The Fed also revealed that it would potentially increase interest rates sooner than estimated.
“Overall, I think the global markets have shown weakness in light of the recent Fed moves to raise interest rates. Hence, I do think the drop yesterday is quite correlated. We’ve seen U.S. markets fell yesterday, and as a result, all other risk asset classes fared equally poorly, including crypto,” vice president of corporate development and international at cryptocurrency exchange Luno, Vijay Ayyar, said in a statement.
While digital assets were witnessing one of their most significant drops in a month’s time, the benchmark 10-year Treasury yield witnessed a 1.7 percent boost in valuation on Wednesday.
The occurrence, though, is not one to be shocked with, given that growth assets, including technology stocks, are usually affected when the rates upsurge. This lessens investors’ interest as future earnings are not as appealing when yields are on the rise.
This, however, is not the case with cryptocurrency, given it is deemed as a much risker asset to deal with.
“Specifically with regard to Bitcoin and crypto, the last four weeks have seen some weak price action owing to a lack of interest/demand, holiday, and potentially similar factors,” Ayyar added.
Across the Atlantic Ocean, the cryptocurrency market in Europe and Asia-Pacific also experienced a significant drop in share values on Thursday.
Crypto market analyst at Japanese bitcoin exchange Bitbank, Yuga Hasegawa, elaborated in an emailed note that Bitcoin could be on a path of consecutive tumbles, potentially crashing to $40,000.
“The downward pressure on the price is expected to continue until the market is fully priced in the tighter-than-expected monetary policy,” Hasegawa said.
As of time of writing, Bitcoin currently stands at $43,042.79, with a 0.42 percent drop, marking a low valuation of $42,435.40 in the past 24 hours, while Ethereum bids at $3,420.10, dropping by 2.67 percent, according to Coin Desk.