Home Cryptocurrency Bitcoin falls below $23,000 as euro zone raises interest rates to curb inflation

Bitcoin falls below $23,000 as euro zone raises interest rates to curb inflation

by WOOWinvest
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Bitcoin falls below $23,000 as euro zone raises interest rates to curb inflation

After briefly reclaiming the $24,000 mark on Wednesday, bitcoin (BTC) is back in the red today as the price of the leading cryptocurrency dipped below $23,000.

The latest price action comes after electric car maker Tesla announced that it had sold 75% of its bitcoin reserves (worth around $936 million) and the European Central Bank (ECB) announced that interest rates would rise by 0.5%.

This bitcoin price Reacting quickly after falling below $23,000 overnight and a daily low of $22,457 Wednesday afternoon. Bitcoin is currently trading around $22,600, down 6.4 percent on the day, according to CoinMarketCap.

The broader crypto market has also plunged: Ethereum (ETH) is down more than 6% in the past 24 hours to its current level of $1,500, and several other major coins are down 6% to 9%.

It’s not all bad news for the world’s largest cryptocurrency, though. Tesla boss Elon Musk noted that the company’s divestment of its bitcoin holdings “should not be viewed as a judgment on bitcoin,” and that the company “definitely” seeks to increase its bitcoin holdings in the future.

Investment bank JPMorgan also appears to be bullish on cryptocurrencies; in a report on Thursday, it argued that demand for digital assets from retail investors is growing.

“The extreme backwardation phase seen in May and June, the most extreme since 2018, appears to have passed,” JPMorgan analysts wrote in a note.

ECB hikes interest rates

It remains to be seen how Bitcoin and other cryptocurrencies will perform in the long term after the European Central Bank raised interest rates.

The decision was made to rein in soaring inflation in the euro zone, which hit 8.6% in June. It also means the negative -0.5% interest rate the ECB has been offering since 2014 is coming to an end.

With today’s rate hike, borrowing will be less attractive, and while it may eventually help contain some inflationary pressures in the euro zone, volatility in markets, including the cryptocurrency space, is likely to increase.

“Despite market volatility and changing economic conditions, we believe that cryptocurrencies will play a huge role in the next decade – for everyday investors and financial services institutions,” said a spokesperson for Bitstamp, Europe’s oldest cryptocurrency exchange Tell Decrypt.

The exchange also emphasized that volatility in the crypto space has happened before — just like in other markets and industries, and the right way forward is to have a proper regulatory framework in place.

“What we’re saying is that moments like these really show why it’s critical to have strong regulations to increase the stability of the industry to support the base case for cryptocurrencies as an alternative system when interest rates rise,” Bitstamp’s The spokesman added.

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