The world’s largest cryptocurrency by market value fell as much as 6.2 percent to $29,085 on Wednesday.
Bitcoin swung back and forth between gains and losses after falling to a nearly 11-month low, while stablecoin TerraUSD continued its downward spiral.
The world’s largest cryptocurrency by market value fell as much as 6.2% to $29,085 before trading little changed. Analysts had been eyeing the $30,000 level as a key threshold, with many projecting that losses could accelerate once the coin falls below it.
Meanwhile, the TerraUSD algorithmic stablecoin continued to spiral down, trading below 30 cents. Backers of the coin are trying to raise around $1.5 billion to prop up the token after it crashed out of its dollar peg, according to the founder of a firm approached for the deal.
“Bitcoin and cryptocurrencies have become a risky/risky trade this year and the CPI data is a risky development,” said Matt Maley, chief market strategist at Miller Tabak + Co. “As for Terra, this news is having an impact as well. Its collapse is lower confidence in an asset class that has been losing confidence among investors all year.”
Other cryptocurrencies also fell, with Bitcoin Cash losing more than 11% and Dash falling almost 16%.
The drop came after data showed that US consumer prices rose more than expected in April, indicating that inflation will persist at elevated levels for longer. The data point also suggests that the Federal Reserve will stay on its path of aggressive interest rate hikes.
“There is extreme fear in the cryptocurrency market,” said Marcus Sotiriou, an analyst at UK-based digital asset broker GlobalBlock. “In addition to the ongoing macroeconomic headwinds, there is now a fundamental risk to the crypto industry as the UST stablecoin has de-pegged from $1.”
Cryptocurrencies and other riskier assets have been under pressure throughout the year. The Federal Reserve and other central banks are raising interest rates to combat red-hot inflation, creating an unfavorable environment for risky assets.
The area around $30,000 had been a “particularly sensitive zone” for Bitcoin, wrote James Malcolm, head of forex and crypto research at UBS. That’s where the economics of mining turn negative, “which could potentially lead to increased coin sales by this key cohort,” he said. He added that long-term accumulators like MicroStrategy Inc. are beginning to fall below historical break-even points.
“Below this, there is little technical support until the 20k low, where margin calls come into play,” Malcolm wrote.
Bitcoin’s Relative Strength Index is now at 21, showing that it is at its highest oversold level since January. The coin now needs to contain $28,000. A break below that level could start a new wave of selling.
Still, many cryptocurrency investors, mindful of the fact that Bitcoin has been through a boom-and-bust cycle before only to recoup losses time and time again, preach patience.
“Ultimately, every investor needs to size positions based on their level of risk and time horizon,” said Alex Tapscott, managing director of Ninepoint Partners’ digital assets group. “We believe that Bitcoin will recover and that we are still in the early stages of this new Internet of Value. Keep calm and HODL.”
–With the assistance of Sidhartha Shukla and Kenneth Sexton.