Price of Bitcoin plunges to multimonth low

The price of Bitcoin is at its lowest level in months as the Federal Reserve gears up to begin raising interest rates and Kazakhstan grapples with unrest.

On Friday, Bitcoin fell by about 4% and was hovering between $40,000 and $41,000 — a precipitous decline from its November peak of about $69,000. The last time that the flagship cryptocurrency was this low was back in September.

The value of Bitcoin, like most other cryptocurrencies, is known for volatility and is influenced by a multiplicity of variables. This decline is likely being steered by news from the Fed and by the internet being shut down in Kazakhstan, which is a major Bitcoin mining hub.

Cryptocurrency is an inherently risky asset, although it has become more mainstream in the past few years as some well-known individuals such as Apple CEO Tim Cook and Tesla founder Elon Musk, the world’s wealthiest person, have spoken about their investments in cryptocurrency.

Because it is considered by many to be a risky asset, it’s no surprise that this week’s release of the minutes from the Fed’s December meeting sent prices dropping. After meeting last month, central bank leaders signaled that they would move to tighten monetary policy at a faster pace in order to combat inflation.

Fed officials indicated that they expected as many as three interest rate hikes this year and also said that the central bank would begin scaling back its massive monthly bond purchases by $30 billion, meaning that the program is set to end early next year, months earlier than originally planned.

Notes from the December meeting indicated that central bank officials are taking a more hawkish approach to monetary policy than they have previously. Bitcoin and some other stocks began declining after the minutes were released on Wednesday as investors moved to less risky assets.

“We are seeing broad risk-off sentiment across all markets currently as inflationary concerns and rate hikes appear to be at the forefront of speculators’ minds,” Matthew Dibb, the chief operating officer of Singapore crypto platform Stack Funds, told Reuters. Dibb cautioned that Bitcoin risked dipping back down into the mid-$30,000 range in the short term.

Another developing, and apparently worsening, factor in the dynamics of Bitcoin’s recent decline is the civil unrest in Central Asia. Kazakhstan, a former Soviet state, has been grappling with mass demonstrations and opposition to the Russia-backed Kazakh government that has resulted in violence and death.

Matthew Schmidt, a University of New Haven associate professor of national security and political science, told the Washington Examiner that the protests began after a sharp increase in energy prices and burgeoned into anti-government protests in cities across the country.

“People seem to be fed up with the authoritarian government and pushing for some sort of democratic system or at least a system that gives them more of a voice,” Schmidt said.

One of the tools the Kazakh government has used to squelch the demonstrations has been to cut off the country’s internet in order to make protests more difficult to organize. A knock-on effect of the internet blackout is that Bitcoin miners have been left in the dark.

While it might come as a surprise, Kazakhstan is now the world’s second-largest source of Bitcoin mining after the United States. China had previously been the world’s largest producer of new bitcoins, although last year Beijing banned the practice, sending miners across the border to Kazakhstan and elsewhere in droves.

Bitcoin mining is how new bitcoins come to fruition. To mine for Bitcoin, high-powered computers are used to verify virtual coin transactions. Bitcoin operates on what is known as a blockchain, essentially a public ledger, that contains the history of every transaction. The miners’ computers solve complicated math problems in order to add new blocks to the chain and are in turn rewarded with the digital token, making the endeavor profitable.

Prior to the unrest, Kazakhstan accounted for about 18% of the Bitcoin network’s processing power, according to the Cambridge Centre for Alternative Finance. Some estimates are that the Kazakh internet blackout knocked up to 15% of that network offline.

Shidan Gouran, an early investor in Bitcoin and expert on cryptocurrencies, told the Washington Examiner that he is not fazed by the recent decline and characterized it as a temporary drawdown similar to other dips that occurred after Bitcoin hit new record highs.

“This last peak was way higher than the previous peak, which was inordinately higher than the one before it,” he said, predicting that the price of Bitcoin will surpass $100,000 at some point in the future.