- Bitcoin was down more than 8% Thursday after the Federal Reserve released “hawkish” minutes Wednesday.
- Ethereum, cardano, binance coin, solana and other cryptocurrencies were also deeply in the red.
- The Fed is planning to cut back its support for the economy, spelling trouble for risky assets.
Bitcoin was down more than 8% Thursday, and the cryptocurrency market was a sea of red, after minutes revealed the Federal Reserve could soon start rapidly cutting back its support for the economy.
Bitcoin, the world’s biggest cryptocurrency by market value, was 8.6% lower over the 24 hours to 4.50 a.m. ET on the Coinbase exchange, trading at $42,776. The sharp drop put BTC more than 35% below a record high of close to $69,000 touched in November.
The crypto sell-off began Wednesday after the Fed released “hawkish” minutes from its December meeting, which showed the US central bank could tighten monetary policy faster than previously expected.
In December, the US central bank said it would speed up reductions in its bond purchases and signaled that interest rates would rise in 2022 as it grapples with the strongest inflation in 39 years.
Yet the minutes released Wednesday show policymakers could well go even further and faster than that, and the central bank could even start selling the bonds it bought during the coronavirus crisis.
“It may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated,” they said.
The reaction in the markets was swift. Bond yields shot up and cryptocurrencies and technology stocks — two asset classes that have benefited the most from the Fed’s ultra-loose monetary policy — got trashed.
Analysts said higher bond yields make cryptocurrencies and unprofitable tech companies look less attractive. Instead, investors are pivoting towards companies with dividends and strong earnings, that can benefit from economic growth and deliver good returns as inflation stays hot.
“We see bitcoin behave closer to a small-cap tech stock,” said Sean Farrell, head of digital asset strategy at Fundstrat. He said the cryptocurrency is still maturing as a “store of value.”
Jeffrey Halley, senior market analyst at Oanda, said the “buy everything trade” is on its last legs.
“Young pups … nurtured at the central bank pool of eternal QE … will have to learn the meaning of the term ‘two-way price volatility,'” he said in a note.