Bitcoin hits lowest level since December flash crash

The largest cryptocurrency by market value dropped to $42,505 on Thursday, pushing the price to the lowest since it hit $42,296 at the start of last month

Bitcoin has slumped to the lowest level since its December flash crash, as growing expectations of rising borrowing rates weighs on some of the best performing assets over the past few years.

The largest cryptocurrency by market value dropped to $42,505 in early Asia trading on Thursday. That pushed the price to the lowest since it hit $42,296 during a weekend crash at the start of last month. Bitcoin has surged by nearly 500% since the end of 2019, after stimulus measures put in place during the Covid-19 pandemic.

Other cryptocurrencies tumbled as well. Ether, the number two by market value reached prices not seen since October 13, and Binance Coin fell to October levels as well. Tokens of popular DeFi applications, including Uniswap and Aave, declined.

It's a speculative investment and volatility is going to be a constant there, said David Donabedian, chief investment officer of CIBC Private Wealth Management.

Given the current macro backdrop, leverage within the Bitcoin market and recent robustness seen in the alt-coin market, we think it’s appropriate to be overweight Ethereum and other smart contract platforms, Fundstrat digital asset strategists Sean Farrell and Will McEvoy wrote in a note on Wednesday.

We probably would not bet the farm near term on Bitcoin but think there is an opportunity in going long volatility via derivatives strategies, they said.

The recent swings in cryptocurrencies come amid a volatile period for financial markets. Spiking inflation is forcing central banks to tighten monetary policy, threatening to reduce the liquidity tailwind that lifted a wide range of assets.

US equities deepened losses after minutes from the Federal Reserve flagged the chance of earlier and faster interest rate hikes. The S&P 500 dropped 1.9%, led by real estate stocks, while the tech-heavy Nasdaq 100 shed 3.1%. Stock losses spread into Asia on Thursday morning.

The Fed is hawkish, said Stephane Ouellette, chief executive and co-founder of crypto platform FRNT Financial. Knee-jerk reactions in cryptocurrencies tend to treat them as exclusively risk assets ‘in spite of the longer-term trends around inflation’ and store of value, among other factors.