Bitcoin drops 40% from record to hit the lowest level since September

Bitcoin fell below $42,000 on Friday, continuing a week-long decline that has been ongoing since September.

The largest cryptocurrency fell 4.9% to $41,008, marking an approximate 40% drop from the record of nearly $69,000 set in Nov. 10. Ether, which is the second-largest cryptocurrency, fell as much as 9 per cent to its lowest level since Sept. 30, 2018. According to CoinGecko, both of these tokens as well as other ones such as Binance Coin, Solana, Cardano and XRP have fallen more than 10% over the past seven days.

After minutes of the Federal Reserve’s December meeting was published on Wednesday, the retreat indicates that there is a chance for faster and earlier rate increases as well as a potential balance-sheet rundown.

Fundstrat strategists stated that the main reason for this sell-off was the Fed’s intent to reduce its balance sheet in Q1 2022. “Unfortunately, there is no immediate support available ahead of September 2021 lows of $39,573, with breaks of this leading down to last summer’s May-July top.”

Bitcoin gained 60% last year and outperformed other asset classes in a narrative that included institutional adoption, inflation protection, and investment diversification. However, it has struggled in recent weeks amid volatile financial markets. The rise in inflation is prompting central banks to tighten their monetary policy. This could reduce the liquidity tailwind that has lifted many assets.

“As the crypto market matures we can see major crypto assets like Bitcoin and Ethereum moving in tandem with traditional markets such as Treasury bonds,” stated Ben Caselin (head of research and strategy, crypto exchange AAX).

Todd Morakis, the co-founder of digital-finance service provider JST Capital, said that the declines were also due to the unrest within Kazakhstan. This is where a significant number of crypto-mining operations went following China’s crackdown and which had been already affected by recent power-supply problems.

According to data from Blockchain.com, the Bitcoin hash rate is a measure of the network’s computing power. It fell to 176 million Terahashes on Thursday, from a record high of 208 million set on January 1.

There were still signs of recovery. Hayden Hughes, chief executive of Alpha Impact, a social trading platform, stated that his client base was “accumulating heavy” in Asia morning. However, they prefer Ether to Bitcoin. Jeffrey Halley, Oanda Asia-Pacific senior market strategist, said that the relative strength index (RSI) is “well oversold”. He wouldn’t be surprised if it bounces back to $45,000.

There’s always a risk of price movement up or down, especially at the weekend when liquidity can be scarce and prices may rise.

Antoni Trenchev co-founder of Nexo, a crypto lender, said that a break in Bitcoin’s price below $41,000 could be “very ugly” and make the low-to-mid thirties look like a destination. He said that Bitcoin had experienced a period of consolidation of $30,000 to $40,000 between May and July 2013 and that “a repeat of this history cannot be ruled out” as Fed tightening is still the dominant narrative.


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