Bitcoin Falls Below $40K for First Time Since Mid-March

Bitcoin, the world’s largest cryptocurrency by market capitalization, fell below $40,000 on Monday for the first time since March 16.

The fall in price comes as investors weigh the risks of rising interest rates, soaring inflation and dislocation to global commerce as a result of Russia’s invasion of Ukraine.

As of press time bitcoin (BTC) was down 8.5% over the past 24 hours to $39,783.

“Rising interest rate fears and the expectation of tighter monetary conditions continues to be a focus for bitcoin investors,” according to the bitcoin-focused asset manager Nydig, in a note to investors.

The bitcoin market, which has become unusually synced lately with U.S. stocks, has been pricing in the Federal Reserve’s pledge to shrink its nearly $9 trillion balance sheet by as much as $95 billion a month.

A move by the U.S. central bank to reduce its total assets would effectively reverse a key stimulus plan used in 2020 and 2021 to bolster traditional markets, the financial system and the economy; bitcoin’s price quadrupled in 2020 and rose 59% last year.

Now traders are assessing the potential impact of the balance sheet reduction – sometimes referred to as “quantitative tightening” – along with multiple interest-rate hikes of 50 basis points (0.5 percentage point) each, according to Lucas Outumuro, head of research at IntoTheBlock. In recent economic cycles, the Fed has moved at a slower pace, with hikes of just 25 basis points.

“This has weighed down on risk assets and increased correlations between crypto and stocks,” said Outumuro.