The cryptocurrency has since recovered some of its losses and was last down more than 16 per cent at $47,693.75. Ethereum, the second largest cryptocurrency by market capitalization, also saw a similar sell-off as it fell nearly 15 per cent to $3,905.
The crash has been triggered by a risk-off sentiment that has swept global markets in the wake of the emergence of the new COVID-19 variant and the sudden pivot towards hawkishness by the US Federal Reserve Chairman Jerome Powell.
Powell’s support for a faster tapering of the US Fed’s bond-buying program that will provide less liquidity to the system and tighten financial conditions relatively from the historically loose conditions of the past 21 months is seen as a negative for speculative activity in the market.
“Risk assets like stocks and Bitcoin are tanking simply because Powell hinted the Fed might wrap up the taper a couple of months early and the first 1/4 point rate hike may also come a bit sooner,” Peter Schiff, chief economist and global strategist at Euro Pacific Capital said on Twitter.
The sell-off in the cryptocurrency market was harder for the likes of Cardano, Solana, Polygon, and Shiba Inu, which tanked 13-20 per cent.
Analysts suggested that much of the selling pressure in the Bitcoin market was on the cash side, which was exacerbated by high leveraged positions on Bitcoin derivatives by traders. The instant crash in prices to $42,000 was a result of traders’ stop-loss being triggered on their derivative positions.