- Bitcoin was down nearly 9% on Thursday after the Federal Reserve released the “hard” minutes on Wednesday.
- Ethereum, cardano, binance coin, solana, and other cryptocurrencies were also deeply in the red.
- The Fed plans to cut its support for the economy, which poses problems for risk assets.
Bitcoin was down nearly 9% on Thursday, and the cryptocurrency market was a red sea, after the minutes revealed that the Federal Reserve could soon begin to rapidly cut back its support for the economy.
Bitcoin, the world’s largest cryptocurrency by market value, was down 8.6% over the 24 hours to 4.50 a.m. ET on the Coinbase exchange, trading at $ 42,776. The steep drop put BTC more than 35% below a record close to $ 69,000 hit in November.
Ethereum, the second largest token, fell more than 12% to $ 3,336. Binance’s coin plummeted around 8%, the solana was down roughly 13%, and XRP was 8% lower.
The cryptocurrency selloff began on Wednesday after the Fed released “tough” minutes from its December meeting, showing that the US central bank could tighten monetary policy faster than expected.
In December, the US central bank said it would accelerate cuts in its bond purchases, noting that interest rates would rise in 2022 as it grapples with the strongest inflation in 39 years.
However, minutes released Wednesday show that lawmakers could go even further and faster than that, and that the central bank could even start selling the bonds it bought during the coronavirus crisis.
“It may be justified to increase the federal funds rate earlier or at a faster rate than participants had anticipated,” they said.
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The reaction in the markets was swift. Bond yields soared and cryptocurrencies and tech stocks, two asset classes that have benefited the most from the Fed’s ultra-lax monetary policy, were destroyed.
Analysts said higher bond yields make cryptocurrencies and unprofitable tech companies appear less attractive. Instead, investors are leaning toward companies with strong dividends and earnings, which can benefit from economic growth and generate good returns as inflation remains high.
“We see bitcoin behaving closer to a small-cap tech stock,” said Sean Farrell, head of digital asset strategy at Fundstrat. He said that the cryptocurrency is still maturing as a “store of value.”
Jeffrey Halley, a senior market analyst at Oanda, said the “buy-all trade” is in its late stages.
“Young cubs … raised in the eternal QE central bank group … will have to learn the meaning of the term ‘two-way price volatility,'” he said in a note.