Bitcoin, Ether near multi-month lows on aggressive US central bank stance on rate hikes

Bitcoin 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 of the past few years.

The largest cryptocurrency by market value dropped as low as $42,505 in early Asia trading Thursday. That pushed the price to the weakest since it touched $42,296 during a weekend crash at the start of last month. It rallied back to around $43,200. 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.

Other cryptocurrencies tumbled as well. Ether, the number two by market value, took out its own flash-crash bottom to reach prices not seen since October 13, and Binance Coin dropped to October levels as well. Tokens of popular DeFi applications including Uniswap and Aave declined.

Ether, the world's second-largest cryptocurrency which underpins the ethereum network, lost 5.2 per cent on Wednesday, and touched its lowest level since October, before bouncing back slightly to $3,460.

"Given the current macro backdrop, leverage within the Bitcoin market, and recent robustness seen in the altcoin market, we think it's appropriate to be overweight Ethereum and other smart contract platforms," Fundstrat digital-asset strategists Sean Farrell and Will McEvoy wrote in a note Wednesday. "We probably would not bet the farm near-term on Bitcoin but think there is an opportunity in going long volatility via derivatives strategies."

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

Stocks worldwide deepened losses after minutes from the US Federal Reserve flagged the chance of earlier and faster interest rate hikes. The S&P 500 fell 1.9 per cent, while the tech-heavy Nasdaq 100 slid 3.1 per cent. Stock losses spread to Asia on Thursday morning.

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

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 $69,000 in early November after US regulators allowed Bitcoin futures-based exchange-traded funds.

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.

Crypto analysts were also watching to see whether the protests in Kazakhstan, which were initially sparked by rising fuel prices, would affect the Bitcoin network.

The central Asian nation was the world's second-largest centre for bitcoin mining, Britain's Cambridge Centre for Alternative Finance said last year.

The Kazakh government late last year began cracking down on some Bitcoin miners, fearing the energy-intensive process was using too much power.