Warnings of a rise in US interest rates and political unrest in Kazakhstan have caused Bitcoin to suffer a sudden drop in value. The cryptocurrency dropped to less than $42,000 against the dollar from $47,000 earlier this week. This made Bitcoin prices the lowest that they’ve been in months.
The chief cause of the price collapse was that remarks from a meeting at the Federal Reserve indicated that interest rates would rise across the US sooner than expected. This would see the central bank selling off some assets which would represent a much less risky investment option when compared to volatile assets such as Bitcoin.
By midweek the value of Bitcoin had slipped to $46,000, but immediately after the minutes from the Fed meeting were released, Bitcoin’s price had slumped to nearly $41,000. This marked the cryptocurrency’s worst performance since September 2021. In contrast, Bitcoin had been enjoying highs of over $60,000 as recently as November.
It was a bad week for other cryptocurrencies with the price of Ethereum slipping from $3,800 to $3,200 in just a couple of days. Tech stocks were also hard hit as investors flocked to less risky assets ahead of the anticipated interest rate rise. Three interest rate rises have been proposed for 2022 in a bid to stave off the rising inflation rates in the US.
Why Kazakhstan is so important for Bitcoin
Bitcoin was dealt a double blow when the ongoing political unrest in Kazakhstan appears to have threatened the network’s overall capacity to operate. This is because the central Asian country is one of the world’s focal points for Bitcoin mining – the process by which each Bitcoin transaction is verified and new crypto coins are created.
For a long time, China was the epicenter of Bitcoin mining, but 2021 saw the Chinese government cracking down on the activity. This has meant that Bitcoin mining in Kazakhstan has risen to account for 18% of all global Bitcoin mining activity. The US currently conducts 35% of the average monthly share of global Bitcoin mining, compared to 11% for Russia and 10% in Canada.
However, daily life in Kazakhstan has been thrown into turmoil with widespread street protests against skyrocketing fuel prices. The protests have been severely clamped down upon by the nation’s authorities with the President Kassym-Jomart Tokayev saying that riot police could ‘shoot to kill’ in order to calm the violence.
Kazakhstan has also endured a complete shut-down of the internet this week which had a big knock-on effect on the processing power of the Bitcoin network. Prior to this, the country had been able to use cheap electricity to account for one-fifth of all Bitcoin mining activity in the world. But with no indication given as to when the unrest in Kazakhstan would be resolved, it seems that Bitcoin investors could be in for a few rough weeks ahead.
