Bitcoin has plummeted 53% from its all-time high as crypto follows broader markets lower amid investors' fears of tighter Fed policy

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A Bitcoin coin lies on a screen showing the Bitcoin
Fernando Gutierrez-Juarez/picture alliance via Getty Images
  • Bitcoin dropped 6% on Monday, marking a 53% drop from its all-time high above $69,000. 
  • Worries about the Fed tightening monetary policy have weighed on the broader cryptocurrency market and on stocks. 
  • Bitcoin has lost 30% during 2022 and the Nasdaq Composite has slumped into a bear market. 

Bitcoin on Monday marked a slide of more than 50% from its peak, extending this year’s loss alongside other so-called risk assets on concerns about the Federal Reserve’s aggressive changes in monetary policy to cool down inflation. 

The world’s most-traded cryptocurrency fell 6% to $32,450, dropping below $33,000 for the first time since July 2021. The moves set the digital asset back 53% from its all-time high of $69,044.77 notched on November 10. Bitcoin’s market capitalization has declined to $627.9 billion from about $1.22 trillion six months ago, according to Coingecko. 

“We continue to believe that the dramatic reversal of Fed liquidity , from injecting $120 billion per month to reducing liquidity by $95 billion, will collapse the pandemic era bubble in cryptocurrencies, money-losing tech companies and meme stocks,” said Jay Hatfield, chief investment officer at Infrastructure Capital Management, in a note that put a 2022 bitcoin target at $20,000. 

His note arrived after a rough weekend for cryptocurrencies that followed sharp selloffs in the Nasdaq Composite and the S&P 500 last week. Ether, the most valuable altcoin, stretched losses into Monday by declining 5.8% to $2,393.04, and stablecoin Tether traded at $0.9998, just below its peg to the US dollar. Meme coins Dogecoin and Shiba inu fell 8% and 10%, respectively. 

The Fed is shrinking its balance sheet while raising interest rates in its pursuit to pull down inflation from March’s hot 8.5% reading.

Before the Fed’s tightening cycle, liquidity provided by Fed stimulus as well as government transfer payments was poured into crypto and stocks in 2021. But with those sources drying, cryptocurrencies and equities alike have been knocked down. 

Bitcoin has slumped about 30% this year, the Nasdaq has declined 22% into a bear market , and the S&P 500 has been pulled down 13% into a correction. 

Among meme stocks, the marquee names of GameStop and AMC have respectively slid by 33% and 53%. 

“This collapse should continue the rotation into defensive dividend stocks such as preferred stock, utilities, REITs and consumer staples,” said Hatfield. 

Meanwhile, the dollar has become more attractive as a haven, boosted by the prospect of higher US interest rates. The US Dollar Index, which tracks the greenback’s performance against the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc, has hit a 20-year high.

The Fed since March has raised its benchmark rate by 75 basis points to a range of 0.75% to 1%, and the central bank is expected to issue more rate increases of 50 basis points this year.

“A combination of the war in Ukraine, China’s lockdowns, concerns about rising interest rates and softer equities have left crypto complex sharply out of favour among investors, who are flocking to the safety of the US dollar and other safety assets instead,” Victoria Scholar, head of investment at Interactive Investor, wrote in a note Monday.