RIYADH: Bitcoin fell below $42,000 on Thursday, testing multi-month lows after minutes from the Federal Reserve's last meeting showed it leaning toward more aggressive policy action, which sapped investor appetite for riskier assets.
The world's largest cryptocurrency was last at $42,784, down 7.44 percent, having lost 5.2 percent on Wednesday.
A break below last month's trough of $42,000 would make it the weakest since September.
“Although sharp, the most recent pullback in the digital asset market was by no means unexpected. Previously, we warned that uncertainty in the markets and weak technical fundamentals made a drop to low $40k levels entirely possible,” Mikkel Morch, Executive Director & Risk Management at crypto/digital assets hedge fund ARK36 said.
“In addition, we have recently seen a steep rise in open interest to levels that in the past were conducive to setting off a cascade of liquidations should the price drop below a key support level. This is precisely what happened this time around as well,” Morch added.
“After the release of the Fed’s December meeting minutes, hinting at a more decisive move to scale back its expansionary monetary policy to tackle inflation, negative investor sentiment caused Bitcoin to lose the key $46k level. Once that support was breached, liquidations followed within minutes.”
The fall “correlated with the risk off move across most traditional asset classes,” said Matt Dibb, COO of Singapore-based crypto fund distributor, Stack Funds, pointing to the declines in the Nasdaq in particular.
Moves in cryptocurrency markets are becoming more aligned with those in traditional markets as the number of institutions trading both crypto and other assets grows.
The Nasdaq plunged more than 3 percent overnight in its biggest one-day percentage drop since February. Fed minutes had showed US policymakers had discussed reducing the bank's balance sheet at their December meeting, when they also decided to accelerate finishing their bond buying programme.
Share markets in Asia sold off on Thursday as well, while US Treasury yields edged higher.
Ether, the world's second-largest cryptocurrency which underpins the ethereum network, lost 5.2 percent on Wednesday, and touched its lowest level since October, before bouncing back slightly to $3,460.
Crypto analysts were also watching to see whether anti-government protests in Kazakhstan, which were initially sparked by rising fuel prices, would affect the Bitcoin network.