On Wednesday, the price of Bitcoin fell. The main reason is that investors are increasingly convinced that the U.S. Federal Reserve will continue to raise interest rates in the coming months to combat inflation.
The entire cryptocurrency market also ended the day in the red. News from the U.S. added to the uncertainty: after Democrats secured a majority in both houses of Congress, questions arose in the market regarding future regulation.
As of 8:56 a.m. Moscow time, Bitcoin had fallen 1.2%, trading at $73,935.
During overnight trading, the leading cryptocurrency hit a three-month low. This was driven by a strengthening dollar and rising bond yields. The situation was also undermined by the ongoing outflow of funds from spot ETFs.
Expectations of tighter monetary policy following inflation data
When October’s consumer price figures came in higher than expected, the market began to anticipate a rate hike in December even more strongly.
This data coincided with fairly hawkish statements from two Fed officials, who also supported the idea of raising rates to combat inflation.
According to CME FedWatch data, the market is nearly 89% certain that rates will be raised by 25 basis points in December. There is also a small chance that the hike will be more aggressive—by 50 basis points. At the same time, the probability that rates will remain unchanged is practically zero.
When interest rates rise, it’s always bad for risky and speculative assets, such as cryptocurrencies. It becomes more profitable for investors to put their money into debt instruments than to take risks in the crypto sector.
Incidentally, Bitcoin has not fared well during periods of high interest rates, as was the case during the Fed’s tightening cycle in 2022 and 2023.
Forecasts of further rate hikes have only worsened Bitcoin’s situation, which had already begun to decline last week when the Democrats won the midterm elections. Investors fear that the new administration may tighten oversight of the industry, as Democrats have always advocated for stricter rules on risk management and anti-money laundering.
Cryptocurrency Prices: Altcoins Fall in Bitcoin’s Wake
On Wednesday, nearly all cryptocurrencies fell in price.
Ether, which ranks second by market capitalization, fell 2.4% to $2,066.29, while XRP dropped 3.8%.
Solana and Cardano also lost value, falling 3.5% and 2.3%, respectively. BNB fell 1.4%.
As for meme coins, Dogecoin lost 2.8%, while $TRUMP posted a slight gain of 0.4%.