Bitcoin gives back new year rally gains as traders weigh ETF decision, Fed policy

The drop followed the Nasdaq’s worst day since October, as traders pulled back from tech stocks after they led the advance in 2023. Stocks traded lower on Wednesday, while bond yields rose.

Also on Wednesday, Richmond Federal Reserve President Thomas Barkin warned that although he sees a soft landing ahead, interest rate hikes remain “on the table.” Investors have hoped to see rate cuts in 2024, since Fed officials opted to hold rates steady at their December meeting and indicated three rate cuts this year.

“[Today’s] bitcoin price action is now morphing into a macro trade,” said Zach Pandl, director of research at Grayscale Investments. “We are seeing weakness in stocks, bonds, and gold, and strength in the dollar. If this message is repeated in today’s Fed’s minutes, it could be additional short-term headwind for our markets.”

Elsewhere, investors cited some concern that the Securities and Exchange Commission wouldn’t approve an exchange-traded fund this year as expected by many bitcoin bulls.

That uncertainty “triggered some jitters in short-term traders who then decided to unwind long positions, especially since leverage had been increasing fast,” said Noelle Acheson, economist and author of the “Crypto is Macro Now” newsletter.

Bernstein shrugged off that concern, in a note late Wednesday morning addressing the earlier drop.

“We continue to maintain that all price dips to the ETF are market opportunities to buy bitcoin/bitcoin miners, and the market will likely bounce materially off the actual approval event (likely end of next week),” the firm’s Gautam Chhugani wrote.

January hasn’t been an especially strong month for bitcoin. It’s ended the month in the green five out of the last 11 years, according to CoinGlass.

Before the new year rally, bitcoin was coming off a three-week consolidation period, but still managed to end December with a 12% gain. It ended 2023 up 157%.

—CNBC’s Jeff Cox contributed reporting

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