Bitcoin continued its slide and fell further on Wednesday (7), below $19,000, near its lowest levels of the year. As fears grow of increasing intensity of interest rate hikes by the Federal Reserve (Fed) in the US, investors are abandoning cryptocurrencies due to their loss of attractiveness.
The world’s largest cryptocurrency retreated 5.82 percent to $18,752 at 7:44 a.m. – its lowest level in nearly three months. The token is now trading about $1,000 above its lowest level of the year.
The weakness in Bitcoin has spread to the broader cryptocurrency market, with total market capitalization falling below the $1 trillion mark again. The market has lost nearly $2 trillion so far this year, with rising interest rates and higher inflation undoing most major cryptocurrency bets.
Bitcoin’s latest losses come after strong US labor market and service sector data from the world’s largest economy, indicating some resilience.
This also gives the Fed more room to raise interest rates at a steep pace. Data from CME Group shows that investors are pricing in more than a 70% chance of a 75 basis point increase by the Fed later this month, which would take the rate from 2.25%-2.5% to 3%-3.25%.
Bitcoin and the broader cryptocurrency market were among the assets hardest hit by the interest rate hike as the Fed began undoing two years of COVID-era accommodative monetary policy.
Loose monetary taps and high liquidity were the biggest factors behind the stellar cryptocurrency rally in 2020 and 2021. But with interest rates rising now, investors are hesitant to leverage capital in the space.
Sentiment toward cryptocurrency has also been tarnished by a series of high-profile bankruptcies this year, particularly at hedge fund Three Arrows Capital and cryptocurrency lender Celsius.
Recent losses in Bitcoin have also drastically reduced the profitability of mining the token. This has spurred selling by most major miners to cover their positions, resulting in further losses for the token.