FX.co ★ Bitcoin falls to monthly lows amid escalation in Eastern Europe and Fed tightening

Early on Friday, BTC extended its downward movement, falling below $41,000 and losing 7.2% over the day. It is the biggest loss for bitcoin since January 21.

On Tuesday, the digital asset market cap reached $2 trillion, pushed up by increased investor demand for crypto assets with low liquidity, before declining to $1.9 trillion on Friday.

At the time of writing, bitcoin was trading at $40,675, with the bitcoin dominance index being at 39.7%. BTC's downtrend triggered a sell-off of altcoins. Terra suffered the biggest losses, dropping by 9.1% over the past 24 hours.

It is the second straight day of losses for bitcoin, after rising by 7% since the beginning of February. The cryptocurrency made its largest daily gain on February 4, when it jumped by 11.5%.

On Thursday, BTC slid down alongside key US stock indexes amid escalating tensions in Eastern Europe. Analysts noted bitcoin's high correlation with the S&P 500. On Thursday, the S&P 500 fell by 2.12% to 4,380.26 points, while the NASDAQ Composite decreased by 2.88% to 13,716.72 points.

Western nations have disputed the statements by the Russian Ministry of Defense about a pull-back of troops from near Ukraine after drills. It was followed by an escalation in the Donbass, resulting in a sell-off of risk assets by investors.

Bitcoin, which has lost 11% since the beginning of January, has lost its status as a defensive asset, as it has a negatively correlation with gold. The precious metal gained more than 5% since the beginning of February – it has surpassed $1,900 for the first time since summer of 2021.

An interest rate hike by the Federal Reserve would send the global crypto market into a permanent downtrend, putting an end to "crazy speculation", David Kelly, chief market strategist at JPMorgan said.

Kelly attributed the high interest towards crypto assets to Fed monetary stimulus, which sent bond yields down to ultra-low levels and forced market players to turn to risk assets.

"If you push real interest rates up to a positive level, you will starve the crazy ideas of cash and funnel money towards projects that actually have a positive, real economic return," he commented.

Following January's meeting of the Federal Reserve, Fed chairman Jerome Powell signaled an interest rate hike by 50 basis points in March could be possible. BTC dropped below $43,000 after December's Fed meeting minutes had been released.