Virtual currencies represented by Bitcoin and Ethereum themselves belong to risk assets. Against the backdrop of the Federal Reserve's interest rate hike, the appreciation of the US dollar has increased the pressure on the depreciation of risk assets

Virtual currencies represented by Bitcoin and Ethereum themselves belong to risk assets. Against the backdrop of the Federal Reserve's interest rate hike, the appreciation of the US dollar has increased the pressure on the depreciation of risk assets. Therefore, the decline in virtual currency prices is inevitable, as is the decline in trading volume and liquidity.

Virtual currency reappears in a plummeting market! As of 17:47 on June 13th, Bitcoin (BTC) fell below $24000 and Ethereum (ETH) fell below $1300, with 24-hour declines of 12.97% and 16.56%, respectively. With the sharp decline of BTC and ETH, multiple virtual currencies such as BNB (Coin On Coin), ADA (Ada Coin), XRP (Ripple Coin), SOL (Solana), and DOGE (Dog Coin) followed suit, with a 24-hour decline of over 10%.

(Video production: Wang Zunjun)

For the current sharp decline in virtual currency, industry insiders generally believe that against the backdrop of the Federal Reserve's interest rate hike, the appreciation of the US dollar and related assets has a squeezing effect on virtual currency, and virtual currency is considered a high-risk asset for priority selling as a high probability event. If the inflation data in the United States continues to exceed expectations this year, triggering the Federal Reserve to further accelerate the pace of tightening, there is still a high probability that the virtual currency will weaken further in the future.

Virtual coin prices plummet again

This morning when we looked at the market, Bitcoin fell below $26000. By the time we looked at it again in the afternoon, it had already fallen below $25000. In the evening, it had already fallen below $24000... It's really a continuous decline! "Exclaimed a currency insider to the International Finance News reporter.

In recent days, the main tone in the currency industry has been 'continuous decline'. According to financial data from Yingwei, as of 17:47 on June 13th, BTC fell below $24000 to $23978.6, a 24-hour decrease of 12.97% and a 7-day decrease of 23.15%; ETH fell below $1300 to $1223.96, a 24-hour decline of 16.56% and a 7-day decline of 35.45%, setting a new low for the year.

With mainstream virtual currencies such as Bitcoin and Ethereum plummeting, other virtual currencies are also not immune. Among them, multiple virtual currencies such as BNB, ADA, XRP, SOL, DOGE, and TRX experienced a 24-hour decline of over 10%, and a 7-day decline of over 23%.

The reporter noticed that virtual currencies also plummeted in February this year. As of 16:47 Beijing time on February 24th, mainstream virtual currencies such as Bitcoin and Ethereum have all declined, with Bitcoin experiencing a 24-hour decline of 7.46%, Ethereum experiencing a 24-hour decline of 12.45%, and Coincoin experiencing a 24-hour decline of 11.43%.

In fact, the collapse of virtual currencies represented by Bitcoin is no longer new. At the beginning of this year, Bitcoin hit $43000 per coin, a daily decline of 6.16%. From 23:00 on January 20th to 11:00 on January 21st this year, Bitcoin fell from $43325.2 to $38465.3, a 12 hour drop of $4859.9.

On the afternoon of December 4, 2021, Bitcoin briefly fell below $42000, with a 24-hour decline of over 20%. As of 20:00 on the same day, a total of 417000 people have been exposed in the past 24 hours, with a total of 2.584 billion US dollars in virtual currency network contract exposure, of which over 1 billion US dollars were exposed in Bitcoin within 24 hours.

Is the Federal Reserve raising interest rates the main reason?

Industry insiders generally believe that against the backdrop of the Federal Reserve's interest rate hike, the appreciation of the US dollar and related assets has a squeezing effect on high-risk targets such as virtual currencies, leading to a sharp decline due to the sell-off of virtual currencies.

Pan Helin, co director and researcher of the Research Center for Digital Economy and Financial innovation of the International Joint School of Business of Zhejiang University, pointed out to the reporter of the International Financial News that the decline of Bitcoin and Ethereum was due to the fact that these virtual currencies were risk assets themselves. Against the backdrop of the Federal Reserve's interest rate increase, the appreciation of the United States dollar had increased pressure on the depreciation of risk assets, so the current virtual currency was in a round of decline. In the process of the Federal Reserve raising interest rates, the decline in cryptocurrency is inevitable, as is the decline in trading volume and liquidity.

A senior executive of a virtual currency company, Gao Hong (pseudonym), told the International Financial News that in recent months, the trend of the virtual currency market has further increased its correlation with global inflation. The US benchmark interest rate, which affects global asset pricing, may undergo a directional shift in 2022. Investors have found that the Fed's wording is more hawkish, sparking concerns in the market about the accelerated pace of tapers (reducing asset purchases), increased frequency of rate hikes, and earlier timing of rate hikes.

From some indicators, it can be seen that the market will experience an oversold in the short term, and the probability of Bitcoin fluctuating in current prices is relatively high. However, if the inflation data in the United States continues to exceed expectations this year, triggering the Federal Reserve to further accelerate the pace of tightening, there is still a high probability that virtual currencies will weaken further in the future, "said Gao Hong.

Pan Helin reminds that virtual currency is prohibited in China. Currently, virtual currency exchanges are mostly code based, and the threshold is very low. Virtual currency transactions involve virtual currency issuers, who in turn engage retail investors, with each link being linked. For such false virtual currency exchanges, the risk is not only depreciation, but also the possibility that the traded virtual currency is a non-existent code.

Pan and Lin suggest that the state should clarify its regulatory attitude and hold onto the red line of "financial institutions are not allowed to provide account opening, fund transfer, and settlement services for virtual currency related business activities"; For personal virtual currency trading behaviors that are difficult to regulate, the law should clarify that secondary market trading behaviors are not protected and indicate regulatory attitudes to participants.

This article originates from the International Financial Journal