As part of the larger tech selloff, cryptocurrencies such as bitcoin and ether plummeted, confirming their reputation among investors as hazardous investments that can be rapidly dumped in times of market stress.
The declines were sparked by Federal Reserve minutes that revealed officials are considering a quicker rate hike schedule this year. Holding unpredictable investments that yield little income becomes less appealing when interest rates climb, compared to government bonds.
Since the release of the December Fed minutes on Wednesday, bitcoin has dropped more than 6% and is currently trading at $42,777.99. Since the publication, Ether, the world’s second-largest cryptocurrency by market capitalization, has lost nearly 10% of its value. This puts bitcoin around its lowest 5 p.m. ET level since late September, and far below November highs.
“This is proof that bitcoin behaves like a risk asset,” said Noelle Acheson, head of market research at Genesis Global Trading, a crypto lender. “The short-term holders are the ones who are trading and will be closest to the exit,” says the expert. Bitcoin’s market is split between long-term investors who regard the computer-mined digital currency as a store of value and hedge funds and other money managers who see it as a method to profit during periods of market euphoria, according to Ms. Acheson.
Cryptocurrencies, like other speculative assets such as tech stocks, have done well in a climate of ultra-low interest rates during the last two years.
Last November, bitcoin’s dollar worth approached $70,000 as global markets rose and traders gambled that the first U.S. exchange-traded fund connected to the cryptocurrency would attract new investors, driving bitcoin’s price even higher. Bitcoin’s climb has slowed since then, with the price dipping near the close of last year.