Bitcoin tumbled to a near three-month low on Friday, sliding below the $70,000 mark for the first time since mid-August as a combination of monetary policy expectations and index changes weighed on cryptocurrency markets.
The world's largest digital asset by market capitalization fell 6.3% to $69,101.1 by 22:40 ET (03:40 GMT), extending a stretch of underperformance that has been evident since October. The decline comes as a series of headwinds have converged on the crypto space, dampening appetite for speculative assets.
Rate Hike Expectations Intensify
A primary driver of the sell-off is the growing conviction among market participants that the Federal Reserve will raise interest rates as soon as December. According to CME Fedwatch, markets are now pricing in between 25 and 50 basis points of tightening in December, following consumer inflation data for October that came in hotter than expected.
Higher interest rates typically pressure speculative plays like cryptocurrencies by curtailing market liquidity and drawing capital toward safer investments such as government debt. Bitcoin has historically underperformed in high-rate environments, and the current expectations are reinforcing that pattern.
Regulatory Caution Adds to Pressure
Sentiment was further dented by heightened uncertainty over the U.S. regulatory landscape after the Democratic party secured majorities in both chambers of Congress. Several prominent Democrats have advocated for stricter anti-money laundering and risk management rules for the crypto industry - a stance that could lead to more stringent legislation being passed by Congress.
The prospect of tighter regulation has added a layer of caution for investors, who are already grappling with the implications of a shifting interest rate outlook.
Strategy's Index Removal Raises Concerns
Adding to the negative tone this week was MSCI's announcement that Strategy, the world's largest Bitcoin treasury company, along with other similar firms, will be excluded from its benchmark indexes effective November 30. While the development does not present immediate selling risks for Bitcoin, it does limit Strategy's ability to raise new capital - which has been the firm's main source of funding for its substantial Bitcoin purchases.
This constraint could eventually push Strategy to sell more of its holdings, a move that was seen earlier this year, as the company races to meet its mounting capital and debt obligations. The potential for such sales adds another layer of uncertainty for Bitcoin's price trajectory.
Strategy's stock (MSTR) closed down 6.49% at $114.41, while Bitcoin itself was down 6.15% against the U.S. dollar. In after-hours trading, MSTR was quoted at $112.80, down 1.41%.
The combination of rate hike expectations, regulatory concerns, and the MSCI index exclusion has created a challenging environment for cryptocurrencies, with Bitcoin bearing the brunt of the selling pressure. Market participants will continue to monitor these factors as they assess the outlook for digital assets.