Bitcoin and Other Cryptos Tumble. The Fed Is Fueling Fear and Uncertainty.

bit coin news

bit coin newsBitcoin continued to tumble on Thursday, falling as much as 8% in morning trading. Other cryptocurrencies were falling even more as investors pulled back on the sector in the wake of the Federal Reserve’s December minutes.

The world’s largest cryptocurrency had been trading around $42,900, down 8.2% from its 24-hour high, according to CoinMarketCap, though trading remains volatile. It’s trading at its lowest levels since October, aside from a flash crash in December, and it’s well below the $46,000 price shortly before the Federal Reserve’s December minutes were released.

Ether, the No.2 cryptocurrency, was 11% lower at $3,390. Other major cryptos were down sharply, including Solana, off 11.3% to $149, Cardano, down 7.8% to $1.23, and Binance Coin, sliding 8% to $469.

Alt-tokens typically outperform Bitcoin in bull markets and underperform in a selloff, a trend that appears intact in the latest bout of weakness.

“When there’s panic and fear in the market, everyone seeks liquidity, and the smaller-cap the asset, the more outsize the selling pressure,” said Sean Farrell, head of digital asset strategy at Fundstrat Global Advisors, in an interview. “We’re seeing exacerbated drawdowns in the smaller-cap tokens.

The Fed minutes clearly spooked the markets, raising the possibility of a rate increase as soon as March and a potential reduction of the central bank’s $9 trillion balance sheet. Cryptos now appear to be moving in tandem with technology-heavy Nasdaq Composite, which slumped 3.3% on Wednesday as investors ditched the riskiest tech stocks for safer assets.

Cryptos could be in for more declines. The sector tends to trade like unprofitable, emerging-technology cloud stocks, says Farrell, which are also under pressure as rates increase. “Whenever there’s a macro selloff in tech, crypto will be hit,” he says.

Leverage has been building in crypto through futures contracts and other derivatives. Falling prices could trigger margin calls and forced liquidations by brokerages and “DeFi” platforms where traders take positions using “smart contracts” that automatically trigger additional collateral requirements or liquidations if prices breach certain levels.

Liquidations of long Bitcoin positions soared to nearly $250 million on Wednesday, according to Coinglass, well above the $48 million in liquidations on Tuesday. Bitcoin liquidations still remain well below the $615 million spike on December 4.

Bitcoin may also have come under pressure due to an internet shutdown in Kazakhstan on Wednesday, triggered by protests over soaring fuel prices. Kazakhstan has become a major center of Bitcoin mining—processing transactions in return for Bitcoin as rewards—following a ban on mining in China. The Bitcoin network’s capacity, called the hash rate, plunged 12% due to miners going offline in Kazakhstan.

A falling hash rate implies that the network isn’t as secure, putting pressure on prices. Miners have also sold Bitcoin to raise cash as it becomes less profitable to process transactions.

Mining has shifted to North America over the past few years and miners have been raising capital through equity and debt offerings. That may alleviate some of the selling pressure during this downturn.

Indeed, if there’s an opportunity in the selloff, it may be in the Bitcoin miners. A lower hash rate implies less competition for mining and potentially more profits for miners that manage to remain online.

“If this issue with the hash rate persists, North American miners could benefit,” says Farrell.

Investors may want to sit tight before buying the stocks, though. Miners such as Marathon Digital Holdings (ticker: MARA) and Riot Blockchain (RIOT) were each down about 8% on Thursday. Lower prices for Bitcoin would offset the gains from processing more Bitcoin transactions and prices would need to stabilize and potentially move higher for miners to report higher profits.

Coinbase Global (COIN) should, in theory, benefit from the volatility and higher volumes in crypto too. But it was also in the red, down 3.7% on Thursday, taking its decline to 10% this year, even after getting upgraded at BofA Securities.

The broader crypto sector was also under pressure. The Amplify Transformational Data exchange-traded fund (BLOK), a basket of blockchain-related stocks, was off 2%. The ProShares Bitcoin Strategy ETF (BITO) was down 2.6%. The sector was underperforming the broader Nasdaq Composite, which was off 0.10% in morning trading.

Source: https://www.barrons.com/articles/cryptos-bitcoin-ethereum-price-fed-kazakhstan-51641471790