Bitcoin Hits December 2020 Low Ahead of Anticipated US Interest Rate Hike

NEW YORK (Sputnik) - The price of Bitcoin fell on Monday to its lowest level since December 2020 on widespread risk aversion across US markets by investors who fear runaway inflation might make the Federal Reserve more aggressive with a new round of interest rate hikes beginning this week.

By 11:15 a.m. ET (15:15 GMT), Bitcoin was at $22,843, down $4,980 or 18% on the day. The leading cryptocurrency fell to a session low of $22,594 earlier, its lowest since December 16, 2020, when it plumbed an intraday bottom of $21,322.

The Federal Reserve is widely expected to raise interest rates for a third time this year at the conclusion of the June policy meeting of its Federal Open Market Committee (FOMC) on Wednesday.

After leaving rates at between zero and 0.25% for a period of two years due to the coronavirus outbreak, the FOMC raised them by 25 basis points, or a quarter-percentage point, in March and 50 basis points, or a half-percentage point, in May. While its June meeting was initially expected to result in another half-point rise, some economists are speculating that the central bank is toying with a 75 basis point, or three-quarter percentage point, hike due to runaway inflation.

On Friday, the US Labor Department reported that the Consumer Price Index grew by 8.6% in the year to May, expanding by the fastest rate since 1981, as the cost of virtually everything - from food to fuel, shelter and clothing - spiked last month. The average price of gasoline at the pump, particularly, hit more than $5 a gallon for the first time ever in the United States last week.

The University of Michigan said its closely-followed US Consumer Sentiment Index hit a record low in its latest survey for June as Americans become increasingly disillusioned with inflation taking a bigger bite of their paychecks each month. Consumer spending accounts for 70% of the US economy.

The Federal Reserve's tolerance for inflation is 2% per year and the US central bank has vowed to raise interest rates throughout the year and even slow the economy, if necessary, to reduce inflation.

Aside from Bitcoin’s plunge on Monday, US stocks also tumbled with Wall Street’s S&P 500 and Nasdaq Composite indices losing more than 20% on the year to enter the so-called bear-market territory.