Sep 07, 2022 02:28AM ET
By:AnalysisWatch
Bitcoin fell back below $19,000 on Wednesday, approaching its lowest levels of the year, as investors fled cryptocurrencies due to growing fears of a hard-line Federal Reserve.
The world's largest cryptocurrency sank more than 5% to $18,764 at 01:56 ET (05:56 GMT), its lowest level in nearly three months. The token now trades about $1,000 above its lowest level of the year.
Bitcoin's weakness spread to the entire cryptocurrency market, with the total cryptocurrency market capitalization sinking back below the $1 trillion mark. The market has lost nearly $2 trillion so far this year, as rising interest rates and higher inflation have caused most major cryptocurrency bets to fade.
Bitcoin's latest losses come on the heels of strong U.S. jobs and service sector data, indicating some resilience in the world's largest economy.
This also gives the Federal Reserve more room to raise interest rates at a good pace. CME Group data shows that traders rate the likelihood of the Fed raising interest rates by 75 basis points later this month at more than 70%.
As the Fed began to unwind two years of accommodative monetary policy from the COVID era, Bitcoin and the cryptocurrency market in general were among the assets most affected by rising interest rates.
Loose monetary policy and high liquidity were the main factors behind the stellar rally in cryptocurrencies over the past two years. However, with rising interest rates, investors are hesitant to leverage capital in this space.
Sentiment towards cryptocurrencies was also dampened by a series of high-profile bankruptcies this year, notably that of hedge fund Three Arrows Capital and cryptocurrency lender Celsius.
Bitcoin's recent losses have also drastically reduced the profitability of mining the token. This has spurred selling by most major miners to cover their positions, leading to further losses for the token.