Bitcoin falls to lowest level since December's flash crash

The largest cryptocurrency by market value dropped as much as 6 per cent to US$43,451. PHOTO: REUTERS

HONG KONG (BLOOMBERG, REUTERS) - Bitcoin has slumped to the lowest level since its December flash crash as growing expectations of rising borrowing rates weigh on some of the best-performing assets over the past few years.

The world's largest cryptocurrency by market value was last at US$42,700 (S$58,100) on Thursday (Jan 6), down 1.7 per cent, having lost 5.2 per cent on Wednesday.

That puts Bitcoin at its lowest since it touched US$42,296 during the weekend crash at the start of last month. A break below last month's trough of US$42,000 would make it the weakest since September. 

Bitcoin has surged by about 500 per cent since the end of 2019, in the wake of stimulus measures put in place during the Covid-19 pandemic.

The Bloomberg Galaxy Crypto Index, which includes Ethereum, Litecoin, Bitcoin Cash and EOS, slumped about 5 per cent. Tokens of popular decentralised finance applications, including Uniswap and Aave, declined

"It's a speculative investment and volatility is going to be a constant there," said Mr David Donabedian, chief investment officer of CIBC Private Wealth Management.

The recent swings in cryptocurrencies come amid a volatile period for financial markets. Spiking inflation is forcing central banks to tighten monetary policy, threatening to reduce the liquidity tailwind that lifted a wide range of assets.

US stocks deepened losses after minutes from the Federal Reserve flagged the chance of earlier and faster interest rate hikes. The S&P 500 fell 1.9 per cent, led by real estate stocks, while the tech-heavy Nasdaq 100 slid 3.1 per cent.

"The Fed is hawkish," said Mr Stephane Ouellette, chief executive and co-founder of crypto platform FRNT Financial. Knee-jerk reactions in cryptocurrencies tend to treat them as exclusively risk assets "in spite of the longer-term trends around inflation" and store of value, among other factors, he added.

Other sectors of the crypto world are also under pressure. Bitcoin mining stocks took a beating as analysts reconsider their outlooks after a record-breaking year.

Bitcoin had climbed to a record of almost US$69,000 in early November after Bitcoin futures-based exchange-traded funds were allowed.

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