This Friday, the price of the leading cryptocurrency hit a three-month low. Investors were spooked by two things: the possible exclusion of Strategy from the MSCI indices and expectations that interest rates will continue to rise. All of this has noticeably dampened the enthusiasm of crypto market participants.
As of 6:40 a.m. Moscow time, the price of the largest cryptocurrency had fallen by 6.3%, settling at $69,101.1. This is the first time since mid-August, when the price broke through the psychological barrier of $70,000.
Looking at the bigger picture, Bitcoin has been in a downtrend since October, and there are a number of negative factors contributing to this.
The main source of volatility is the likelihood that the Fed will raise interest rates again. It appears that the market is increasingly convinced that the central bank could do so as early as December. CME FedWatch data confirms these concerns: investors expect a rate hike of 25 or 50 basis points, as October’s inflation came in higher than forecast.
Typically, rising interest rates have a negative impact on risky assets, such as cryptocurrencies. Market liquidity declines, and money begins to flow into safer instruments, such as government bonds. Incidentally, Bitcoin has historically underperformed during periods of high interest rates.
Another downside is regulatory uncertainty in the U.S. After the Democratic Party secured a majority in both houses of Congress, anxiety took hold in the market. Some politicians have already begun talking about tightening risk controls and combating money laundering. If these sentiments take hold, the industry could face very strict laws.
This week, a problem involving Strategy emerged. MSCI announced that, effective November 30, the company—which holds the largest Bitcoin portfolio—will be removed from its core indices. This decision did not trigger an immediate sell-off, but it significantly complicates Strategy’s efforts to raise new capital. After all, it was precisely these funds that previously enabled the company to buy up cryptocurrency in massive quantities.
Ultimately, this could force Strategy to sell part of its Bitcoin holdings to cover debts and obligations, as has already happened this year.