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After plunging over the weekend and in early Monday trading to nearly $33,000, the price of Bitcoin bounced back, with the world’s largest cryptocurrency climbing to $35,852 in the mid-afternoon. It was a rise of about 2.2 percent over the prior 24 hours, according to CoinMarketCap. Despite the boost, Bitcoin remains well off its all-time high set in November, down a whopping 48 percent. Many other popular cryptocurrencies have pared their earlier-day losses, but still have substantial declines since the start of 2022.
Traders are hanging onto the upcoming meeting of the Federal Reserve, which convenes this week to discuss the direction of the economy and interest rates. Cryptocurrencies have been plummeting since the Fed announced that it would reduce its stimulus to the financial markets. Reduced stimulus and rising interest rates have hurt crypto prices across the board, and stock markets are broadly lower, though they’ve also since bounced above their lowest levels of the day.
Ethereum dropped by 2.1 percent over the last 24 hours, to $2,365 on Monday afternoon. The second-largest cryptocurrency has fallen heavily since early November, when it sat above $4,800. It’s fallen by nearly 36 percent in 2022.
And many other cryptocurrencies fell heavily early in the day – some into the mid-teens percent lower – only to pare their losses by mid-afternoon:
- Solana – down 7.9 percent
- Dogecoin – down 2.1 percent
- Binance Coin – down 1.6 percent
- Terra – down 1.5 percent
- Cardano – down 0.7 percent
- XRP – down 0.4 percent
The recent rout in cryptocurrencies has hit portfolios hard, with U.S. markets joining in the frenzy too as stocks are coming off their worst week since the start of the pandemic.
Bitcoin drops to six-month low
Bitcoin’s price has been under serious pressure since the Federal Reserve’s early November meeting, when the central bank announced that it would begin tapering its purchases of bonds, reducing stimulus in the financial system.
That downtrend continued through much of December and into January. After peaking above $51,000 in late December, the digital currency fell to about $41,000 in early January and has spent the past couple weeks hovering in the low $40,000 range around $42,000. This latest drop saw the cryptocurrency trade below the $40,000 level for the first time since August. After the most recent decline, Bitcoin is trading near six-month lows.
On Thursday, the Federal Reserve released its 40-page paper exploring the creation of a “digital dollar,” essentially a cryptocurrency version of the U.S. dollar backed by the central bank. While the Fed has not taken a position on the creation of a currency yet, the paper explores the pros and cons of doing so. Now the Fed is seeking public comment on the topic.
The Fed reduces stimulus as inflation ripples through economy
At its December meeting, the Fed announced that it was increasing the pace of its taper, purchasing even fewer bonds than it had projected in November. The new pace means the Fed will stop buying bonds by March 2022.
From there, the Fed has said that it will eventually raise interest rates, as conditions warrant.
“With inflation having exceeded 2 percent for some time, the committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment,” 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 pricing an 87 percent probability of the Fed boosting rates by 25 basis points, with a 3 percent probability of a 50 basis point bump.
While Bitcoin’s price peaked at $68,990.90 in early November, the cryptocurrency’s value has steadily weakened since then. Nevertheless, Bitcoin remains atop the list of most valuable cryptocurrencies by total market capitalization.
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