Bitcoin prices have been declining lately, falling below $40,000 this afternoon at a time when traders are closely monitoring a highly uncertain geopolitical landscape.
The world’s most prominent digital currency declined below the $40,000 level several times today, reaching as little as $39,524.20 around 4 p.m. EDT, CoinDesk figures show. This took place as several digital currencies suffered declines.
Since reaching its intraday low, bitcoin has bounced back, recovering modestly to trade close to $39,725 at the time of this writing, additional CoinDesk data reveals.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
The cryptocurrency experienced these fluctuations at a time when many investors and everyday consumers are worried about surging prices. Traditional measures of inflation have been reaching multi-decade highs in both the U.S. and the U.K.
Further, different parties have floated estimates that March figures for this measure of price increases will reach an annualized rate of 7.5% in the eurozone and 8.5% in the U.S.
Further, there are concerns about U.S. economic growth decelerating, as think tank The Conference Board recently predicted that inflation-adjusted GDP would increase at an annualized rate of 1.7% during the first quarter, a sharp decrease from 7% during the quarter before.
These combined challenges of high inflation and lackluster growth expectations have been materializing at a time when Federal Reserve policymakers expect to continue tightening monetary stimulus, a development that could potentially provide headwinds for economic conditions and global asset prices.
Several analysts weighed in on these developments, including Martha Reyes, head of research at digital asset prime brokerage and exchange Bequant.
“Digital assets pulled back as we hit peak inflation and rate hike concerns while growth is expected to slow,” she stated.
“Inflation data comes out this week but that is a lagging, not a leading indicator,” Reyes emphasized.
“Our main concern at this point is growth which would continue to hurt risk assets.”
Charlie Silver, CEO & Chairman of Permission.io, offered a different take from Reyes, opting to focus on the U.S. central bank.
“The Fed in the US has made it clear that they believe risk assets need to come down and has shouted from the rooftops that the interest rates are going much higher, which is bad for prices.”
Andrew Rossow, an internet and technology attorney, emphasized the key impact this financial institution is having on digital asset prices.
“I believe The Federal Reserve’s current behavior is a major factor at play here,” he stated.
“Earlier this week, the Fed announced that it would be reducing the central bank’s balance sheet by ‘trillions of dollars’ in bond holdings by approx. $95 billion a month – this is an extremely aggressive balance reduction in the central bank’s attempts to tighten its monetary policy with inflation rising.”
Reyes emphasized that regardless of these macroeconomic challenges, crypto adoption continues, and several developments could help accelerate this increase in usage.
“Crypto is steadily building out as evidenced by wider payments integration,” she stated. Further, Reyes noted that “regulation can still be a catalyst, particularly the approval of a spot etf in the US.”
Finally, she predicted that “If inflation does persist, then developing nations will embrace crypto even more.”
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.