Bitcoin Sinks to One-Week Low as Another Fed Rate Increase Looms

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(Bloomberg) — Bitcoin sank to a one-week low, buffeted by investor skittishness ahead of a looming Federal Reserve interest-rate hike and amid harsher regulatory scrutiny of the cryptocurrency sector.

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The largest token dropped as much as 5.9% on Tuesday and was trading at around $21,100 as of 10:26 a.m. in London. The MVIS CryptoCompare Digital Assets 100 gauge shed more than 4%. Equity markets were mixed, with Chinese stocks gaining while most European benchmarks slipped.

The retreat has put a dent in expectations for a sustained Bitcoin rebound and returned the token to a trading range between roughly $19,000 and $22,000. Risk appetite is generally on the back foot before an expected 75 basis-point Fed rate increase Wednesday, part of a tightening cycle that’s sapping liquidity.

“We’ve had some stabilization over the past few weeks and that gave some folks confidence that perhaps a bottom was being put in place,” Katie Stockton, co-founder of Fairlead Strategies, said on Bloomberg Television. “We’re not so convinced.”

Rising interest rates and high-profile meltdowns like that of crypto hedge fund Three Arrows Capital have pummeled digital tokens this year. Bitcoin is down 55% since the start of 2022.

The turmoil is leading to ever greater regulatory oversight of the industry.

Coinbase Global Inc., for instance, is facing a US probe into whether it improperly let Americans trade digital assets that should have been registered as securities, according to people familiar with the matter. Coinbase shares fell as much as 4.8% in premarket trading following the report.

Read more: Coinbase Faces SEC Investigation on Cryptocurrency Listings

Adding to the uncertainty about crypto assets’ direction is the backdrop of geopolitical tensions, with Russia cutting gas supplies to Europe and rising food prices sparking concerns about instability in developing markets. The US dollar is up against all major developed-market currencies this year, providing another headwind for digital tokens.

“Rising geopolitical tensions might provide some underlying support for the dollar, which could drag down risk appetite, which would weigh on cryptos,” said Edward Moya, senior markets analyst at Oanda.

(Updates prices, adds equities in second paragraph.)

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