Bitcoin price plummets to five-month low amid wider tech sell off and Russia’s crypto crackdown
- Bitcoin has dipped below $40k, its lowest level since August
- It comes as the Federal Reserve announced plans to tighten monetary policy
- The Russian central bank announced proposals to ban all crypto trading
Bitcoin has dipped below $40,000 as speculators dumped cryptocurrencies amid a wider tech selloff with a potential interest rate hike looming.
The coin has fallen from its previous all-time high of more than $68,000, which it reached two months ago, in a blow to those who hoped it could act as a hedge against inflation.
It coincides with inflation in the UK hitting a 30 year high of 5.4 per cent and a general expectation that the Bank of England and Federal Reserve will soon raise interest rates.
Bitcoin has dipped below $40,000, its lowest level since last August as the Federal Reserve tightens monetary policy
It has led to Bitcoin breaking below its critical support of $40,000 to reach its lowest level since August. It is currently trading at $38,315.
The $37,000 to $40,000 area is often seen as a critical support level and should the price plummet below this it may well put an end to what has been a short to medium term bull run.
‘The notoriously volatile asset has now retraced more than 75 per cent of its gains since the summer with the potential for risk-off sentiment in equities to continue to weigh on cryptos,’ said Victoria Scholar, head of investment at Interactive Investor.
Ethereum has also dropped to under $3,000 and has fallen almost 30 per cent over the last month after reaching a high of close to $5,000 before Christmas.
‘The negativity on Wall Street this week with the Nasdaq shedding nearly 5 per cent is permeating into other risk assets including the crypto complex.
‘A hawkish Fed trajectory, which aims to dampen price levels, is softening the appeal of inflation hedge assets. On top of that, Russia’s central bank announced draft proposals to ban all crypto trading.’
The Russian central bank announced draft proposals seeking to ban all crypto trading and mining.
The regulations would also block any crypto investment made by banks and ban any exchange of crypto for traditional currencies.
‘Russia imposing a blanket ban on Bitcoin mining may well have an impact on its hashrate and price in the short term.
‘However, I don’t believe this will be a long-term headwind,’ said Simon Peters, analyst at eToro.
A mining hashrate is a security metric in crypto.
The more hashing, or computing, power in a network the greater security has and it is less likely to be attacked.
It is estimated from the number of blocks being mined in the last 24 hours and the current block difficulty.
‘Russia is only responsible for approximately 11 per cent of the global hashrate. This is in stark comparison to China, which when it banned bitcoin mining in May 2021, the mining operations based there accounted for 60–70 per cent of the global hashrate of the bitcoin network.
‘When these China-based miners went offline due to the ban, the hashrate dropped significantly along with price.
‘But, as those miners set up in other countries/jurisdictions the hashrate rebounded and is now at an all-time high.
‘If Russia does ban bitcoin mining we may well see a similar pattern, but to a far lesser extent.’
While the Russian regulations seem harsher, it only comes after a slew of announcements on cryptocurrencies by regulators across the world.
This week the Financial Conduct Authority announced it planned to launch a crackdown on financial advertising amid concerns about ‘the ease and speed with which people can make high-risk investments’.
It wants to ban incentives to invest like the refer-a-friend bonuses and rules around risk warnings would also be tougher.