Bitcoin (BTC) fell more than 5 percent Thursday night, wiping out all of its gains, which is attributed to investor’s preparations for a tightening of Federal Reserve policy.
After rising to $32,000 in the last couple of days, the cryptocurrency has fallen back to the beginning of the $29,000 range. At the moment, the rate has almost recovered to $30,000.
The fall is believed to have been triggered by the U.S. Federal Reserve, which on Wednesday began officially cutting its balance sheet by $8.9 trillion in an attempt to curb inflation.
The move led to losses on most risky assets. Stock markets also fell, for example, the Nasdaq 100 lost 0.7%.
The Fed began cutting its balance sheet at a rate of $47.5 billion a month, as announced at its May 4 meeting. This move may be bearish for BTC as they point to lower liquidity in the market, which means less inflows.
Balance sheet cuts are used by the Fed when other measures, like raising interest rates, fail to control inflation.
CME Group data shows that more than 99% of investors expect the Fed to hike at least 50-75 basis points at the June meeting, indicating more pressure on BTC.
Coinglass data shows that BTC positions worth about $154 million have been liquidated in the last 24 hours, 89% of which were longs.
However, the price recovery to nearly $30,000 is more indicative that investors began taking profits when bitcoin surpassed the $32,000 level and then bought the cryptocurrency at a lower rate.