Bitcoin tumbled on Wednesday, giving back all of its gains from the rally earlier this week.
The price of bitcoin was last lower by 5.5% at $42,422.84, according to Coin Metrics. On Tuesday it climbed as high as $45,913.30, its highest level since April 2022.
The drop followed Nasdaq’s worst day since October, as traders pulled back from tech stocks after they led the advance in 2023. Stocks traded lower on Wednesday, while bond yields rose.
“[Traditional finance] assets stumbled out of the gate in 2024, which may have contributed to higher risk aversion,” said Zach Pandl, director of research at Grayscale Investments. “After the positioning washout, we would expect bitcoin to hold around current levels as markets await a decision on spot bitcoin ETFs.”
Richmond Federal Reserve President Thomas Barkin on Wednesday warned that although he sees a soft landing ahead, interest rate hikes remain “on the table.” Investors have hoped to see rate cuts in 2024 after Fed officials at their most recent meeting in December opted to hold rates steady and indicated three rate cuts this year.
As a result, Pandl said, bitcoin could be morphing into a macro trade.
“We are seeing weakness in stocks, bonds, and gold, and strength in the dollar,” he said. “If this message is repeated in today’s Fed’s minutes, it could be additional short-term headwind for our markets.”
Elsewhere, investors cited some concern that the Securities and Exchange Commission wouldn’t approve an exchange-traded fund this year as expected by many 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.
January hasn’t been an especially strong month for bitcoin. It’s 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, but still managed to end December with a 12% gain. It ended 2023 up 157%.
—CNBC’s Jeff Cox contributed reporting
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