Bitcoin fell on Wednesday, extending overnight losses and nullifying the recent rally, as heightened concerns over the slowdown in interest rate cuts in 2025 led to deep losses among risk assets.
The world's largest cryptocurrency briefly rose above the coveted $100,000 mark, marking a prolonged recovery after a tumultuous surge in late December. However, losses on Tuesday and Wednesday caused the cryptocurrency to completely wipe out the results of its recovery, returning to late December lows.
Bitcoin After losing more than 5% on Tuesday, the cryptocurrency fell by 0.3% to $96,607.7 at 00:49 Eastern Time (05:49 GMT).
The cryptocurrency also underwent some profit-taking after demonstrating impressive growth in 2024. The main rise of Bitcoin occurred after Donald Trump's victory in the presidential election, as he promised to implement cryptocurrency-friendly policies.
However, cryptocurrency markets are now awaiting more detailed information about Trump's political plans as he takes office on January 20.
Bitcoin fears exchange rate fluctuations
Bitcoin's losses occurred simultaneously with broader risk-oriented markets, as stronger-than-expected U.S. economic data fueled fears that the Federal Reserve would slow down interest rate cuts in 2025.
Vacancies Data for November came in above expectations, just days before the release of non-farm payroll data for December, which is expected to provide more accurate signals about the state of the labor market.
Stronger-than-expected Purchasing Managers' Index data for December, while painting a brighter picture of the U.S. economy, also heightened concerns that inflation will remain stubborn in the coming months, giving the Fed even more incentives for a slow reduction in interest rates.
At the December meeting, the central bank lowered its forecast for interest rate cuts to 2025, citing concerns over stagflation and confidence in the labor market.
Earlier this week, Fed officials reiterated this statement.
Higher and longer-term rates negatively affect speculative assets like cryptocurrencies, as they limit the amount of liquidity that can be directed into the sector. This trend will impact cryptocurrency markets throughout 2022 and most of 2023.
The price of cryptocurrency today: altcoins follow Bitcoin's losses
Prices of other cryptocurrencies have fallen along with Bitcoin, nullifying the recovery observed last week. Losses in several major altcoins were much more pronounced than in Bitcoin.
The second largest cryptocurrency in the world, Ether, fell by 8.4% to $3,360.35, while the third largest cryptocurrency, XRP, dropped by 5.1% to $2.3084.
Analysts at Compass Point Research stated that this year Ether is likely to outpace Bitcoin, as more cryptocurrency-friendly legislation in the U.S. will compel investors to diversify their resources beyond the largest cryptocurrency in the world.
Solana, Cardano, and meme tokens fell between 8% to 12%, while Polygon and Dogecoin dropped by 11%.