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After briefly reclaiming the $24,000 mark on Wednesday, Bitcoin (BTC) is back in the red today, as the price of the leading cryptocurrency slipped below $23,000.
The latest price action followed electric car manufacturer Tesla's announcement that it had sold 75% of its Bitcoin stash, worth about $936 million, and the European Central Bank's (ECB) announcement that interest rates would go up by as much as 0.5%.
The price of Bitcoin was quick to react as it slipped below the $23,000 level overnight, dropping to a daily low of $22,457 on Wednesday afternoon. Bitcoin is currently trading at around $22,600, down 6.4% on the day, according to data from CoinMarketCap.
The broader crypto market has tumbled as well: Ethereum (ETH) slid by more than 6% over the past 24 hours to its current price of $1,500, with several other major coins dropping by between 6% and 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 taken as some verdict on Bitcoin" and that the firm will "certainly" seek to increase its Bitcoin holdings in the future.
Investment bank JPMorgan seems to be bullish on cryptocurrencies too; in a report on Thursday, it opined that retail investors are demonstrating growing demand for digital assets.
"The extreme phase of backwardation seen in May and June, the most extreme since 2018, appears to be behind us," JPMorgan analysts wrote in the report.
ECB's rate hike
It remains to be seen how Bitcoin and other cryptocurrencies will perform in the long term, following the ECB's move to increase interest rates.
The decision was taken in an attempt to control galloping inflation in the Eurozone, which reached 8.6% in June. It also spells the end to the -0.5% negative interest rate offered by the ECB since 2014.
With today’s hike, borrowing will be less attractive, and even though it may eventually help curb some of the Eurozone’s inflationary pressures, volatility in the markets, including the crypto space, is likely to increase.
“Despite market volatility and the changing economic context, we believe cryptocurrencies will play a huge role in the next decade—for everyday investors and for financial services institutions,” a spokesperson for Europe’s oldest crypto exchange Bitstamp told Decrypt.
The exchange also stressed that fluctuations in the crypto space have occurred before—just as they do in other markets and sectors, and that the right way to move forward is to have a proper regulatory framework in place.
“What we would say is that moments like this do show why it is crucial that robust regulations are developed to deliver increased stability to the sector, so as to support the underlying case for crypto as an alternative system in times of rising rates,” a spokesperson for Bitstamp added.