Bitcoin Under Renewed Pressure as Looming Fed Hike Adds to Woes

(Bloomberg) -- Cryptocurrencies face renewed pressure after the US failed to advance a key regulatory bill, bruising industry sentiment just ahead of a potential interest-rate hike from the Federal Reserve.

Bitcoin, which fell 4% in US trading, declined further in Asia Wednesday before stabilizing at around $75,700 at 11:50 a.m. in Singapore. The broader cryptocurrency market was also weaker in early Asia trading after steep declines in the US.

Investors had been looking to the Clarity Act — a crypto market structure bill that was under consideration for over a year — to help the market break out of an 11-month malaise, even as the bill was seen as having a low chance of progressing in the Senate this week amid political wrangling. Now inflation fears and soaring US bond yields are expected to push Fed Chairman Kevin Warsh to raise rates Wednesday, which could further damp demand for risk assets like Bitcoin.

The failure to progress Clarity "adds additional headwinds in the short term for a move up in Bitcoin," said Pratik Kala, a portfolio manager at digital-asset hedge fund Apollo Crypto. "Until investors gain more certainty on the path of rates globally, risk assets would remain under pressure," he added.

Over $560 million in bullish bets on cryptocurrencies were unwound in the last 24 hours, according to Coinglass data.

However, positioning in Bitcoin showed some resilience. There are more bets on the original cryptocurrency to rise than to fall, according to data on Deribit. Roughly $1.7 billion in calls were held at the $80,000 level across all maturities, the data show.

Industry executives were quick to express frustration over the failed Senate vote on Tuesday, as it was meant to lend legitimacy to crypto as it further integrated into Wall Street. In posts on X, Ripple Labs Chief Executive Officer Brad Garlinghouse called for a post-mortem looking at why the bill failed, while Coinbase Inc. CEO Brian Armstrong said the industry could no longer wait on Congress.

Both pointed to the Securities and Exchange Commission and the Commodity Futures Trading Commission as being able to offer a clear regulatory framework in the absence of legislation. However, agency rules could prove easier for a future administration to change.