Bitcoin experienced a significant downturn on Saturday, falling 6.53% to $78,719.63 by 5:48 p.m. GMT. This decline follows a previous drop on Friday where it hit $81,104, its lowest point since late November. The weakening of Bitcoin coincides with a strengthening U.S. dollar after Kevin Warsh, former Federal Reserve Governor, was selected as the next Fed chair. Market participants are wary that Warsh might tighten the financial system’s cash flow, given his advocacy for a smaller Fed balance sheet.
Bitcoin and other cryptocurrencies have benefited from the Fed’s expansive balance sheet, rallying as the central bank injected liquidity into money markets. This liquidity has supported speculative assets; however, according to Brian Jacobsen, chief economist at Annex Wealth Management, the ‘bloated balance sheet combined with heavy-handed bank regulation’ has kept liquidity trapped on Wall Street, creating bubbles in assets like bonds, crypto, metals and meme stocks.
Ether also saw a sharp decline, dropping 11.76% to $2,387.77 on Saturday. The broader cryptocurrency market has struggled for direction since a tumble last year, failing to keep pace with rallies in gold and stocks. Jacobsen noted that ‘sometimes these price adjustments feed on themselves,’ and the abrupt drop on Friday served as a reminder of the risks involved, leaving the door open for additional selling pressure in the coming days.
Cryptocurrencies are under pressure, having lost ground since what was anticipated as a period of growth. Bitcoin, the leading cryptocurrency, has lost a third of its value since reaching record highs in October last year.
