Bitcoin New Year's action reversed Tuesday as investors weighed the outlook for Federal Reserve policy and alerted to updates on the Securities and Exchange Commission's pending bitcoin exchange-traded fund decision.
Bitcoin was last down more than 4% at $42,685.85, according to Coin Metrics. It fell 6% earlier in the day, giving back almost all of the gains from Tuesday, when it rose to $45,913.30, its highest level since April 2022.
Ether It fell more than 6% to $2,221.27, while other coins suffered steeper losses. Solana Decreased by 7% and Ripple XRP fell by 6%, and Litecoin and Dogecoin decreased by 10% and 9%, respectively.
Investors have cited some concern that the SEC will not approve the ETF this year, as bitcoin bulls had expected.
This uncertainty “caused some concern among short-term traders who then decided to offload their long positions, especially as leverage increased rapidly,” said Noel Acheson, economist and author of the Crypto is Macro Now newsletter.
Bitcoin is down on Wednesday after a big rally the day before.
Bernstein dismissed those concerns in a note released late Wednesday morning.
“We continue to argue that any drop in ETF prices is a market opportunity to buy Bitcoin/Bitcoin miners, and the market is likely to fall substantially ahead of the actual approval event (probably late next week),” Bernstein analyst Gautam Chugan wrote.
Darius Tabatabai, co-founder of the decentralized exchange Vertex Protocol, said that the crypto market has overheated and entered the seventh month of Bitcoin price growth.
“The warning lights were flashing when we saw the spot higher and the funding rates higher during the holiday period,” he said. “Highly leveraged prices in thin markets are usually not a good recipe for stability, and today's washout looks relatively healthy.”
At the end of December, bitcoin funding rates – fees charged by exchanges to maintain a balance between the prices of derivatives contracts and asset prices – reached their highest level since October 2021, according to CryptoQuant. The history of Bitcoin funding rates dates back to 2016.
Elsewhere, Richmond Federal Reserve President Thomas Barkin warned on Wednesday that while he sees a soft landing ahead, a rate hike remains “on the table.” Later, the minutes of the Fed's last meeting reiterated that policymakers “reaffirmed that it would be appropriate to keep policy tight for some time” in light of inflation, showing that the path to interest rate cuts is unclear.
“[Today's] Bitcoin price action is now turning into a macro trade,” said Zach Pandle, director of research at Grayscale Investments. “We see weakness in stocks, bonds and gold and strength in the dollar.”
January was not a particularly strong month for Bitcoin. According to CoinGlass, it has finished in the top five greenbacks for the past 11 years.
Prior to the New Year's rally, Bitcoin was breaking out of a three-week consolidation period and ending December 12% higher. The crypto benchmark has doubled in 2023 and is up 157%.
– CNBC's Jeff Cox and Michael Bloom contributed reporting.
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