Bitcoin (BTC-USD) plunged by over 10% to below $40,000 on Friday, with the rest of the cryptocurrency market following suit as risk aversion created a downdraft for markets, ahead of the Federal Reserve’s widely telegraphed plans to raise interest rates.
With Russia’s move to ban crypto assets lighting the fuse of the latest plunge, Bitcoin’s price moves have become closely linked to technology shares, which have slumped on rate hike fears. On Friday, the Nasdaq tumbled deeper into correction territory, after Netflix (NFLX) surprised investors with weaker-than-expected subscriber growth.
Bitcoin has been “hit by another wave of risk aversion in the markets,” said Oanda analyst Craig Erlam, sinking below a key level of technical resistance at $40,000, where bulls and bears have fought for days.
Separately, cryptocurrency exchange Kraken set its bear case for Bitcoin at $26,300. In its 2022 cryptocurrency market intelligence report, Kraken said the crypto market as a whole isn’t expected to perform as well this year compared to last, when Bitcoin rocketed to a record at over $67,000.
Ethereum (ETH-USD), one of the hottest digital coin trades that have soared in popularity thanks to the non-fungible token (NFT) boom, tumbled more than 12% and now trades below $3,000. Other smart contract layer-1 tokens like Cardano (ADA-USD), Terra (LUNA1-USD), Polkadot (DOT-USD), and Solana (SOL1-USD) all swooned by double-digits in intraday trading.
“More rates hikes is generally going to cause more pain for risk-on assets, and Bitcoin especially,” said Chris Matta, president of 3iQ Digital Assets US. The leading digital coin normally benefits from expansionary monetary policy, but is now getting hammered by expectations of a more hawkish Fed.
According to Matta, even if Bitcoin is still being looked at as an inflationary hedge by some investors, the Fed’s move to curtail inflation “isn’t going to put it at the top of the list” of many crypto investors.
Regulatory uncertainty and the crypto market’s top-heavy derivatives fueled by speculation are…