The bitcoin and ether-led cryptocurrencies fell as part of a broader technical sell-off, cementing their position among investors as the risky asset was quickly dumped in moments of market tension.
The decline was triggered by Federal Reserve minutes showing that officials were eyeing a faster timetable for raising interest rates this year. As rates rise, volatile investments that generate less income than government bonds become less attractive.
Bitcoin is down nearly 6% since the December Fed minutes were released on Wednesday and recently traded at $42,989.72. Ether, the world's second largest cryptocurrency by market cap, is down nearly 9% since its release. This leaves bitcoin at its lowest near 5 pm. ET levels from late September and reached higher levels in November.
"This is proof that bitcoin acts like a risk asset," said Noel Acheson, Head of Market Insights at crypto lender Genesis Global Trading. “Short-term holders, they are the ones who are trading and will be closest to the exit.”
The market for bitcoin is divided between long-term holders, who view the digital currency, which is mined by computers, as a store of value, and hedge funds and other money managers who view it in times of market euphoria. See it as a way to make money, Ms. Acheson said.
Like other speculative assets such as tech stocks, cryptocurrencies have performed well in an environment of superlow interest rates over the past two years.
Bitcoin's dollar value neared $70,000 last November as broader markets turned bullish and traders bet that the first US exchange-traded fund tied to the cryptocurrency will attract new investors who will push the price of bitcoin even higher. Since then, bitcoin's rally at the end of last year has cooled off.
"It was range bound and waiting for a catalyst one way or another, and the hawkish Fed was the catalyst," said Craig Erlam, senior market analyst at trading firm Oanda.
Bitcoin and other cryptocurrencies are notoriously volatile and the news of them being accepted into mainstream parts of the economy is often fueled by rumors or announcements by celebrities.
Last year, the purchase of bitcoin by Tesla Inc. and the stock-market debut of cryptocurrency exchange Coinbase Global Inc. both propelled the price of bitcoin.
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