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The price of Bitcoin slid lower to $36,564 in early Thursday trading, a decline of 4.9 percent over the previous 24 hours, according to CoinMarketCap. The world’s largest cryptocurrency had rallied since reaching a late January low, but resumed its decline Thursday.
Ethereum, the second-largest cryptocurrency, also fell Thursday, dropping more than 6 percent to $2,606. It now trades about 47 percent below its all-time high reached in November and is down nearly 30 percent so far this year.
Other cryptocurrencies also saw declines in early Thursday trading. Solana plunged nearly 13 percent to $96.02 after hackers reportedly stole about $325 million through Wormhole, which allows users to bridge assets across different blockchains. Wormhole supports six blockchains: Avalanche, Binance Smart Chain, Ethereum, Polygon, Solana, and Terra. Avalanche, Terra and Polygon all fell substantially.
Most top altcoins were trading lower as of Thursday morning.
- Avalanche – down 10.3 percent
- Polkadot – down 9.7 percent
- Polygon – down 8.2 percent
- Terra – down 6.5 percent
- Dogecoin – down 5.2 percent
- Shiba Inu – down 4.9 percent
- XRP – down 4.7 percent
- Binance Coin – down 4.5 percent
- Cardano – down 4.0 percent
The declines come as stocks look likely to open lower on Thursday after Facebook parent company Meta Platforms reported disappointing quarterly profits and issued a weak outlook. Its shares were down more than 20 percent in pre-market trading and the tech-heavy Nasdaq Composite was set to lose more than 2 percent.
Cryptocurrency and stock investors have been grappling with the prospects of higher interest rates, as the Federal Reserve looks to reduce financial stimulus it used to support the economy during the pandemic. On Thursday, the Bank of England announced its policy rate would be increased to 0.5 percent from 0.25 percent in anticipation of accelerating inflation in the coming months.
The cryptocurrency market is also awaiting further clarity from the Biden administration, after reports that it will soon file an executive order that directs the federal government to set policies and regulate digital assets such as cryptocurrency.
Bitcoin stuck below $40,000
Bitcoin’s price has been under serious pressure since the Fed’s early November meeting. The cryptocurrency topped out at nearly $69,000 in November.
From there, it’s been mostly downhill. The downtrend continued through much of December and into January. After peaking above $51,000 in late December, the digital currency fell to nearly $33,000 in late January. Bitcoin bounced off six-month lows set earlier in the week but remains down more than 20 percent since the start of the year.
Nevertheless, Bitcoin remains atop the list of most valuable cryptocurrencies by total market capitalization.
Fed policy tightening looms for crypto markets as inflation surges
At its January meeting, the Fed announced that it was continuing to taper its purchases of bonds and expects to stop buying bonds by early March. The central bank also indicated that it was poised to increase rates soon, signaling what many experts expect will be a rate hike as early as March.
“With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” said the Federal Open Market Committee in a prepared statement.
Now market analysts are expecting the Fed to increase interest rates at its upcoming March meeting. According to CME’s FedWatch Tool, the market is now pricing in a 100 percent probability that rates will rise in March. The only outstanding question is by how much. The market is expecting a 87 percent probability of a boost of 25 basis points, with the remainder projecting a larger 50-point hike.
“While we’re on the cusp of the Fed beginning to raise interest rates, the more significant step of starting to run off the balance sheet is still to come and the Fed provided no additional details in their post-meeting statement,” says Greg McBride, Bankrate’s chief financial analyst. “The combination of rate hikes and eventually shrinking their asset portfolio will complete the transition from going full throttle to putting the brakes on the economy.”
With inflation rising last year at the highest pace in 40 years, the Fed is looking to dampen price increases but not hit the brakes too hard. The resulting decline in stimulus has roiled financial markets in 2022.
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