Deepening cryptocurrencies pushed bitcoin’s price down nearly a fifth to its lowest level since 2020, as part of a broader market sell-off fueled by concerns about rising U.S. interest rates.
Digital currencies fell on Monday after a renewed shock to inflation fueled investor fears that the Federal Reserve may act more aggressively to tame soaring prices. Bitcoin fell 18% from where it was on Friday night to trade at $23,824. Ethereum, another cryptocurrency, fell 27% to $1,222, according to CoinDesk.
As turmoil gripped the crypto market, a popular industry lender froze customer withdrawals. Celsius Network LLC said it is pausing all withdrawals, cryptocurrency exchanges, and inter-account transfers “due to extreme market conditions.”
The losses were fueled by expectations that the Fed would raise interest rates faster than previously signaled to control inflation, which is running at its fastest pace in more than four decades. Data released on Friday showed US CPI inflation came in at 8.6% in May, beating the estimate
The data triggered a sell-off in riskier assets around the world and pushed government bond yields higher. Stock futures on Monday pointed to the S&P 500 benchmark opening in bear market territory, down more than 20% from its January peak. Stock indices fell in Europe and Asia.
Rising U.S. interest rates have prompted investors to reconsider years-long bets on the direction of speculative assets. Few corners of the market have benefited as much from low borrowing costs as cryptocurrencies — gains that are now quickly leveling off.
The renaissance of day trading during the pandemic and the hunt for assets that could generate returns while bond yields hit historic lows saw Bitcoin take off in the fall of 2020. The cryptocurrency hit a record high in November last year. It has since fallen 65% against the dollar, belying predictions by proponents who said the cryptocurrency could replace gold as a hedge against inflation and turmoil in broader markets.
Cryptocurrencies have moved in tandem with traditional markets over the past few weeks, but with even greater volatility.
“Risky and highly liquid cryptocurrencies are usually the first to sell in a market sell-off,” said Jeff Mei, chief marketing officer at blockchain technology solutions provider ChainUp.
Amid the defeat, Celsius said it froze withdrawals, swaps and transfers to better position it to honor withdrawals across the board. The lender said it activated a clause in its terms of service that would allow it to stabilize its operations. It didn’t specify a clause but said it had valuable assets and was working to honor its commitments.
The sell-off took a toll on other cryptocurrency companies who had capitalized on their previous gains. Shares of Coinbase Global Inc., an exchange that went public in April 2021 with a valuation of $85 billion, fell 16% in premarket trading. Shares had lost 77% in 2022 as of Friday.
Cryptocurrency traders are beginning to believe that the Fed will act more aggressively in the absence of clear signs of inflation slowing, said Markus Thielen, IDEG Asset Management’s chief investment officer.
Mr. Thielen pointed to the University of Michigan consumer survey, which showed public expectations for five-year inflation rose to 3.3%, the highest level since 2008, from 3% in May.
“The public is losing confidence that the Federal Reserve will be able to bring inflation down,” he said. It would likely require a change in Fed policy for cryptocurrencies to become very attractive again, Mr. Thielen added.
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Bitcoin’s crash since the fall has contributed to roughly $2 trillion annihilation in the broader market. Crypto’s total market cap, which peaked at nearly $3 trillion in November, was around $996 billion in Asian hours on Monday, data from CoinMarketCap showed.
Officials have sounded the alarm about the risks of crypto trading. Treasury Secretary Janet Yellen last week called cryptocurrencies a very risky investment for most retirees. In May, Securities and Exchange Commission Chairman Gary Gensler said he was concerned many people would be hurt by cryptocurrencies following the implosion of a stablecoin called TerraUSD.
Bitcoin and other cryptocurrencies have recovered from previous sell-offs, including a protracted decline in 2018 and early 2019. Annabelle Huang, managing partner of digital asset company Amber Group, said that since that crash, many more people have started liking cryptocurrencies Trade what has changed the market dynamics.
“This suggests that the market is less susceptible to speculation from those looking to get in early to ‘get rich quick,'” she said.
write to Elaine Yu at [email protected] and Joe Wallace at [email protected]
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