Ahead of a potential Federal Reserve interest rate hike and in the face of increased regulatory scrutiny of the cryptocurrency industry, investor jitters caused by cryptocurrencies decline as bitcoin falls to a level not seen in more than a week.
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The biggest token had a Tuesday decline of as much as 6.5 percent and was trading at roughly $20,904 as of 2:53 a.m. in New York. In contrast to recent high fliers Polygon and Ether, which were down roughly 10%, the MVIS CryptoCompare Digital Assets 100 gauge lost more than 5% of its value.
Expectations for a long-lasting Bitcoin recovery have been dashed by the decline, which has sent the cryptocurrency back to a trading range between $19,000 and $22,000. The widespread lack of risk appetite results from the tightening cycle that is robbing liquidity, which is projected to result in a 75 basis point Fed rate hike on Wednesday.
Co-founder of Fairlead Strategies Katie Stockton remarked on Bloomberg Television, “We’ve got some stability over the previous several weeks and that gave some individuals optimism that perhaps a bottom was being put in place. We aren’t quite convinced.
This year, digital currencies have taken a beating from rising interest rates and well-publicized collapses, like the crypto hedge firm Three Arrows Capital. Since the beginning of 2022, Bitcoin has decreased by 55%.
According to Patrick Chu, head of institutional coverage for APAC at OTC trading platform Paradigm, “Macro drivers haven’t switched for people to truly go long, bear market squeezes are always quite nasty.”
Growing regulatory control of the sector is being prompted by unrest.
For instance, a US investigation is currently underway into Coinbase Global Inc. to see if it inappropriately lets Americans trade digital assets that ought to have been registered as securities. Up to 20% of Coinbase’s shares decreased. According to The New York Times, which cited persons with knowledge of the situation, the Treasury Department is looking into whether or not rival exchange Kraken let customers from Iran trade on the system.
Geopolitical pressures, such as Russia shutting off gas supplies to Europe and rising food costs raising worries about instability in developing economies, are adding to the unpredictability of the direction of crypto assets. This year, the US dollar is competing with all other significant developed-market currencies, giving digital tokens another obstacle to overcome.
Rising geopolitical tensions “could give some underlying support for the dollar, which might impact on cryptocurrencies by reducing risk appetite,” said Edward Moya, senior markets analyst at Oanda.