Bitcoin on Wednesday reversed its new year rally as investors weighed the Federal Reserve’s policy outlook and stayed on alert for updates on the Securities and Exchange Commission’s looming bitcoin exchange-traded fund decision.
The price of bitcoin was last lower by more than 4% at $42,685.85, according to Coin Metrics. Earlier in the day, it fell as much as 6%, giving back nearly all of its gains from Tuesday, when it rose as high as $45,913.30, its highest level since April 2022.
Ether was down more than 6% at $2,221.27, while other coins suffered steeper losses. Solana declined by 7% and Ripple’s XRP fell 6%, while and litecoin and dogecoin slid 10% and 9%, respectively.
Investors cited some concern that the SEC wouldn’t approve an ETF this year, as expected by bitcoin bulls.
That uncertainty “triggered some jitters in short-term traders who then decided to unwind long positions, especially since leverage had been increasing fast,” said Noelle Acheson, economist and author of the “Crypto is Macro Now” newsletter.
Bernstein shrugged off those worries in a note released late Wednesday morning.
“We continue to maintain that all price dips to the ETF are market opportunities to buy bitcoin/bitcoin miners, and the market will likely bounce materially off the actual approval event (likely end of next week),” Bernstein analyst Gautam Chhugani wrote.
Darius Tabatabai, co-founder at decentralized exchange Vertex Protocol, said that the crypto market has been overheated, entering its seventh month of bitcoin price increases.
“The warning lights were flashing when we saw spot higher and funding rates higher over the holiday period,” he said. “Higher leveraged prices in thin markets is not generally a good recipe for stability, and the washout today seems relatively healthy.”
At the end of December, bitcoin funding rates — fees set by exchanges to maintain balance between derivatives contract prices and asset prices — hit their highest level since October 2021, according to CryptoQuant. The history of bitcoin funding rates goes back to 2016.
Elsewhere, Richmond Federal Reserve President Thomas Barkin on Wednesday warned that although he sees a soft landing ahead, interest rate hikes remain “on the table.” Later, the minutes of the Fed’s latest meeting echoed warned that policymakers “reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time” depending on inflation, showing that the path to lower interest rates is uncertain.
“[Today’s] bitcoin price action is now morphing into a macro trade,” said Zach Pandl, director of research at Grayscale Investments. “We are seeing weakness in stocks, bonds and gold, and strength in the dollar.”
January hasn’t been an especially strong month for bitcoin. It has ended the month in the green five out of the last 11 years, according to CoinGlass.
Before the new year rally, bitcoin was coming off a three-week consolidation period, ending December 12% higher. The crypto benchmark more than doubled in 2023, soaring 157%.
— CNBC’s Jeff Cox and Michael Bloom contributed reporting.
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