Bitcoin tumbled to a two-month trough on Friday as growing speculation that the next chair of the U.S. Federal Reserve could pursue tighter conditions in money markets put pressure on cryptocurrencies and bolstered the dollar.
The market-leading digital currency fell 2.5% on the day to trade at $82,300, extending losses from the prior session and moving toward a fourth consecutive month of declines - its longest losing streak in eight years. Bitcoin has now given up roughly a third of its value since hitting record highs in October.
Selling intensified as reports circulated that former Federal Reserve Governor Kevin Warsh was poised to be named by President Donald Trump to succeed Fed Chair Jerome Powell. Warsh has publicly advocated for what he describes as regime change at the central bank and has argued for a smaller Fed balance sheet.
Market participants have often treated cryptocurrencies and other speculative assets as beneficiaries of a large Federal Reserve balance sheet, which historically has supported rallies by injecting liquidity into money markets. That dynamic, some strategists say, has been a key backstop for risk assets.
"As you start to talk about pulling the rug out from underneath that ... all the hedges against balance sheet expansion that people have been going for - gold, crypto, obviously bonds start to sell a little bit," said Damien Boey, portfolio strategist at Wilson Asset Management in Sydney.
Ether likewise slipped to a two-month low, trading 2.9% lower at $2,735.48 as crypto markets continued to struggle for direction after last year’s sharp downturn. Both bitcoin and ether have lagged rallies in other asset classes such as gold and stocks, which at times they had tracked.
Sean Dawson, head of research at Derive.xyz, a crypto options trading platform, said correlations between markets persist and highlighted another driver behind the selloff: concerns tied to AI-related market excitement. He pointed to a 10% drop in Microsoft stock after the company disclosed a large AI-related expenditure but delivered only a modest revenue beat, an outcome that sent a tremor through global markets overnight.
Cryptocurrencies remain without clear direction, having been buffeted by both the macro narrative around central bank policy and episodic equity shocks. The interplay between Fed balance sheet expectations and episodic equity moves tied to AI spending has contributed to volatile trading conditions for risk assets, including crypto, bonds and equities.
For now, investors are monitoring developments around the potential Fed appointment and corporate earnings updates closely, as both continue to shape sentiment across currencies, stocks, and digital assets.