Bitcoin Price Briefly Drops Below $60,000 as Strong Dollar Weighs in on Crypto

Bitcoin briefly dipped below $59,000 on Tuesday, falling to its lowest in the month before trading around $60,500. The sell-off began on Monday and extended into the second day, with the digital asset losing more than 8% from Friday at 5PM ET. Ether slipped for the fifth day in a row, falling 5% to around $4,300. It is down more than 12% from its latest record.

“Many people view crypto as a risk-averse investment,” said Martha Reyes, head of research at digital-asset brokerage and exchange, BeQuant. In times of stress, “people will seek to raise cash and they will raise cash where they may have benefited the most.”

The slide comes after a rally that propelled bitcoin to a record high of $68,525.84 last week. The cryptocurrency got a boost from the introduction of the first exchange-traded fund to hold bitcoin futures contracts, triggering a buying wave. They also got caught up in the recent flurry of risk-taking in markets that included some of the most speculative growth stocks.

Broader markets are beginning to show some signs of panic as inflation accelerated in the wake of the biggest rise in consumer prices in the US in three decades. With some European countries easing restrictions, COVID-19 cases in the Northern Hemisphere are also beginning to coincide with the arrival of winter.

Traditional safe-haven assets such as the US dollar and gold have gained momentum in recent days. The WSJ dollar index, which measures the greenback against a basket of currencies, on Tuesday rose to its highest level since July 2020.

According to researchers at Capital Economics, the strengthening of the dollar is also a sign that investors are betting that the Federal Reserve may have to raise interest rates to tackle inflation. Higher rates will attract yield-seeking capital inflows into the U.S. They expect the dollar to continue rising next year.

This matters for cryptocurrencies as tighter Fed policy will weigh on the broader market and potentially affect the most risk-averse assets, said Joel Kruger, a currency strategist at LMX Group. He added that this is having a short-term negative impact on cryptocurrencies.

Analysts said recent advances in the regulation of cryptocurrencies in the world’s two largest economies could also have an impact on the market.

President Biden signed a $1 trillion infrastructure bill into law on Monday. The bill includes a clause on digital assets, adding similar tax-reporting rules for traditional securities such as stocks and bonds.

Ms. Reyes said, “We are surprised by the pace of growth in the US. It would be unfortunate if this stymied innovation too much.”

China’s Economic Planning Agency reiterated its opposition to cryptocurrency mining on Tuesday and planned further action. It said it had asked local authorities last week to “completely sanitize mining activities” in their areas.

National Reform and Development Commission spokesman Meng Wei told a news conference that computer laboratories at state-owned enterprises would be inspected and punished if they engaged in mining.

Ms Meng said the next step would be to target cryptocurrency-mining activities operating on an industrial scale and state-owned companies involved in the industry. He said that punitive charges would be levied on groups using electricity purchased at residential electricity prices.