Bitcoin briefly tumbles below $40,000 to the lowest since September as investors shed risk

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The price of bitcoin fell at one point Monday to its lowest level since September, as rising rates continued leading investors to shed positions in risky, growth-oriented assets.

Bitcoin fell as much as 6% to touch a low of $39,771.91, according to Coin Metrics, reclaiming most of its losses. It traded about 1.3% lower at $41,904.87 around 4 p.m. ET. Ether, the second-largest cryptocurrency by market cap, also took back losses. It tumbled as low as $2,940 in the morning and last traded 3.4% lower at $3,090.67.

Declines across the cryptocurrency market follow a week of rough trading for equities, particularly momentum stocks. As the 10-year U.S. Treasury yield spiked to start 2022, investors have been rotating into more cyclical and value names. On Monday, the 10-year climbed as high as 1.8%, after ending 2021 at 1.5%.

"We've seen bitcoin behave like a risk asset on numerous occasions over the past few months," said Noelle Acheson, head of market insights at Genesis. "When the market gets jittery, bitcoin tumbles. We've seen various indications that market sentiment is somewhat spooked by the spike in the 10-year — that's not good for any asset that has high volatility in cash flows. Unlike many assets that are tainted by this brush, bitcoin is liquid and therefore can take more selling pressure without a heavy hit."

Bitcoin hit a record high near $69,000 in November, after a hot inflation reading that at the time showed the biggest jump in consumer prices in 30 years. That reading caused investors to jump into inflation hedges, including bitcoin and gold.

Because of the way the cryptocurrency has traded in tandem with equities, investors more than ever are split on whether bitcoin serves as a sound inflation hedge. Last week, Goldman Sachs said it sees bitcoin taking market share from gold and potentially climbing to $100,000.

Cryptocurrency prices have fallen steadily since November, however, with bitcoin dropping about 40%. Bitcoin added to its losses last week, after the Federal Reserve indicated its intentions to begin reducing its balance sheet, in addition to what investors have already been preparing for — its tapering of bonds and raising interest rates.

"The crypto market looks to be moving in line with the broader macro environment right now, most likely due to increasing overlapping institutional investor base, such as macro funds that allocate to crypto as well," said Juthica Chou, head of over-the-counter options trading at Kraken.

Arca Chief Investment Officer Jeff Dorman noted that bitcoin has been diverging from other crypto assets and suggested its moves reflect more about the macro environment and equities than they do about decentralized finance, Ethereum-alternative protocols, NFTs and the metaverse and other crypto sectors and altcoins.

"The market dynamic of bitcoin has changed a lot in the last two years," he said. "It went from being largely, you know, crypto native ... now, it really just trades as a 24/7 levered VIX. It's much more important to those who care about the S&P and the big Treasurys, and you're seeing that every day in the price action."

Crypto stocks also fell Monday. Coinbase fell about 3.2%. Crypto banks Silvergate and Signature lost 4% and 3%, respectively.