Bitcoin fell below a previous cycle all-time high for the first time today, breaking through $19,776.
The peer-to-peer currency has struggled to hold the $20,000 level over the past week as liquidation and liquidity issues plagued the market as lenders like Celsius Network came under extreme pressure.
Bitcoin has lost over 30% of its US dollar value over the past week, its biggest weekly loss since the COVID pandemic began in March 2020, when BTC saw its price plunge 33.45%, according to TradingView data. Bitcoin was trading below $18,000 at press time.
Bitcoin broke the 2017 all-time high on Saturday – the first time in its history that it fell below a previous cycle high. Image source: TradingView.
With US interest rates rising at their fastest pace in decades, assets considered riskier by institutional and professional investors – including bitcoin – have fallen sharply, causing a snowball effect in global markets.
The Fed hiked interest rates by 0.75% on Wednesday, the largest hike by the Federal Reserve System since 1994, as inflation continued to rise over the past year. The US consumer price index (CPI) for the year ended May 2022 was 8.6%, higher than the previous month (8.3%) and marking a new 40-year high.
As interest rates rise, the Fed’s balance sheet begins to shrink. The central bank announced last month that it would begin a period of quantitative tightening on June 1, reducing its asset purchases and holdings – a departure from policies it began years ago.
In particular, Bitcoin has so far existed during a period of Fed balance sheet growth. Since 2008, at the start of the subprime crisis, the central bank began aggressively inflating its assets. It remains to be seen what will happen to the P2P currency when the Fed tightens.
Assets the Federal Reserve has held on its balance sheet since the early 2000s. Image source: Fred.
