Why Is Bitcoin’s Price Dropping?

By ALLIE GRACE GARNETT

The price of Bitcoin (BTC) has generally been declining since November, although the cryptocurrency’s sharp price decline this week was likely triggered by rumors on Friday, Jan. 21, related to the U.S. regulation of digital assets.

Unidentified sources within the Biden administration said last week that the government is developing a strategy to address the economic, regulatory, and national security challenges posed by Bitcoin and other cryptocurrencies. The administration is reportedly also examining the opportunities created by the rise of digital assets, with the Biden administration’s strategy potentially being made public as soon as

This likely report from the administration, while welcomed by those who believe that Bitcoin can benefit from greater regulatory certainty, has triggered some traders to sell their Bitcoin holdings.1 Bitcoin’s price drop from more than $68,000 to current levels just above $37,000 is equivalent to the cryptocurrency losing nearly half its

The price of Bitcoin is also being affected by policy changes by the U.S. Federal Reserve. Federal Reserve Chair Jerome Powell said in December last year that the Federal Open Market Committee (FOMC) would double the monthly rate at which it reduces asset purchases. The Federal Reserve is now purchasing $20 billion less of U.S. Treasury securities each month and reducing by $10 billion each month its purchases of U.S. agency

In his post-meeting press conference on Jan. 26, 2022, Powell indicated that the FOMC will adhere to the bond purchase schedule that it announced in December 2021. While the fed funds rate is being kept near zero for now, developments related to inflation may change that. Keeping elevated inflation levels from becoming “entrenched” remains a key focus for the Fed.

Measures enacted by the Fed that are designed to control inflation have had a negative impact on the price of Bitcoin. The values of risky assets—like Bitcoin—tend to decline in the wake of the Federal Reserve making policy changes to become more fiscally conservative.

More broadly, as Bitcoin matures and becomes more widely adopted, the price of Bitcoin is increasingly correlated with the prices of traditional assets like stocks. This growing correlation means that any event that triggers price declines in the traditional markets is likely to trigger similar or greater price declines for Bitcoin.

The Dow Jones Industrial Average on Tuesday lost more than 800 points before rebounding to post a loss at closing of less than 100 points.3 Similarly, the S&P 500 lost nearly 3% of its value before rebounding to post a loss of less than 50 points.4 The Nasdaq Composite Index, which tracks all of the stocks listed on the Nasdaq stock exchange, lost more than 3% of its value at the session low on Tuesday.5 Several non-U.S. indexes are also experiencing volatility and price declines.

Read more https://www.investopedia.com/why-is-bitcoin-price-dropping-5216985#:~:text=The%20values%20of%20risky%20assets,of%20traditional%20assets%20like%20stocks.

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