Last week, Bitcoin broke down from the $42,000 range to close at $35,179.90. Before the Federal Reserve said it would raise rates over the next three years, Bitcoin acted as a hedge against inflation. What happened?
Bitcoin speculators probably own stocks. When stocks correct by dropping by 10% to 50% in some cases (like Nasdaq stocks), they need to sell Bitcoin. Leveraged investors have margin calls to meet. They need to sell Bitcoin to raise cash and meet margin obligations.
Bitcoin’s correlation to inflation, higher interest rates, and stocks will undermine the cryptocurrency. Mining stocks like Hut 8 Mining (HUT) and Marathon Digital (MARA) are not immune to commodity costs. For example, electricity and property costs rise amid increasing inflation rates. This will hurt HUT and MARA stock. It might have an impact on crypto mining output, which will influence Bitcoin prices.
Bitcoin’s sudden drop is nothing new. The currency has a history of falling at spectacular rates. As bears bet on lower prices, Bitcoin usually reverses. A $100,000 target is possible despite the recent decline. Bitcoin’s perceived value keeps changing. Eventually, markets will renew their interest in finding assets that are decoupled from the U.S. currency. When the world’s reserve currency is in doubt, speculators will buy back Bitcoin.
