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Bitcoin price falls sharply amid Wall Street sell-off, with value cut in half since November.

As the Federal Reserve considers whether to establish a digital currency in the United States, investors are avoiding riskier assets like tech stocks and flocking to cryptocurrencies.

The Federal Reserve's decision to withdraw emergency support has alarmed investors who flocked into high-flying but riskier assets during the pandemic, prompting a sharp sell-off in bitcoin and other cryptocurrencies has outpaced a marked retreat in the U.S. stock market.

Bitcoin's price has dropped from about $70,000 in November to around $35,000 presently. Bitcoin, the world's most valuable cryptocurrency by market capitalization, has dropped about 9% in just 24 hours on Saturday. It has dropped by roughly 23% since the beginning of the year. Meanwhile, Ethereum, the second-largest cryptocurrency, has lost over 15% in the last 24 hours and almost 35% since the start of the year.

The sell-off has escalated a two-month decline in the global cryptocurrency market, which has seen $1.4 trillion in value evaporate: According to CoinMarketCap, the overall value of digital assets was little over $1.6 trillion early Saturday afternoon, down from a high of roughly $3 trillion in early November.

Supporters of bitcoin and other cryptocurrencies argue that they have the potential to revolutionise finance, and they are pushing for crypto to become more widely accepted as a store of value or a payment option. However, many people are purchasing — and increasingly selling — cryptocurrency as a speculative investment in the hopes of making a quick profit.

Just as millions of Americans have joined the digital gold rush in recent months, the newest disaster demonstrates the dangers of the strategy.

Bitcoin proponents believe that its worth stems from its limited supply – the network behind it will only print 21 million tokens — implying that it can be used as a safe haven for money during periods of excessive inflation. However, prices are rising at their quickest rate in 40 years across the economy, putting the thesis in jeopardy. The Fed is ready to hike interest rates to offset this, causing many investors to draw back.

In recent days, the stock market sell-off has been the most apparent and received the most attention. Since Tuesday, the Dow Jones industrial average has down 3.9 percent, while the broad-based S&P 500 has dropped 5.1 percent. This week, the Nasdaq composite index, which is heavily weighted in technology, lost 6.2 percent. However, rather than investors withdrawing funds from the stock market and putting them into bitcoin, the withdrawal from crypto has been much more rapid.

"You'd think you'd see the opposite with the inflation we're having," said Bob Fitzsimmons, Wedbush Securities' executive vice president for fixed income, commodities, and stock lending. "Because that was one of bitcoin's selling points, its link to stock prices astonished me."

Bitcoin and other cryptocurrencies were swept up in a frenzy of investor optimism as the Fed deployed its massive emergency intervention to prop up a pandemic-ravaged economy in 2020, according to Matt Maley, chief market analyst at Miller Tabak + Co.

"It's human nature to believe that because I'm generating money, I'm incredibly brilliant, and this thing will keep going up," he remarked. "They were correct, but not as correct as they anticipated."

He believes bitcoin will continue to prove itself as a type of next-generation gold, but that it will take time for investors to build confidence in its security.

The unpredictable, and at times precipitous, swings in asset values have piqued Washington's interest, raising new concerns about how the developing technology should be governed. The sector has gathered an army of lobbyists to stave off stricter scrutiny from regulators and lawmakers, despite the fact that it's unclear what kind of regulation would be implemented.

The most recent price drop comes as the Federal Reserve considers whether to introduce a digital currency in the United States, similar to electronic cash, that would be backed by the central bank. The Federal Reserve delivered a long-awaited report on its options on Thursday. Crypto experts, economists, and lawmakers have been waiting months for any glimpse into the Fed's secretive reasoning.

The analysis didn't come up with any definitive answers, instead delving into the benefits and drawbacks of any decision. This is in line with the Fed's glacial progress on digital currency concerns, despite the fact that other central banks are experimenting with their own versions. The Fed has made it plain that it will be calm and cautious rather than racing to beat its competitors, and Fed officials frequently stress that any action would ultimately be subject to congressional approval.

The crypto meltdown occurred during the stock market's worst week since the coronavirus outbreak began. Almost every stock market category fell, with technology companies like Apple and Netflix taking the biggest hits. The decline served as a sobering wake-up call for investors as the markets ended 2021 on a high note, despite the fact that the ongoing epidemic, surging inflation, and job market instability continue to threaten many other aspects of the economy.

Despite this, interest in cryptocurrencies has skyrocketed in recent years. In the previous several years, about 30,000 bitcoin ATMs have opened across the country, and even big sports venues have been renamed as cryptocurrency exchanges. Eric Adams, the new mayor of New York City, revealed this week that he will convert his first paycheck into two cryptocurrencies. The payment will be deposited with Coinbase, an online marketplace for buying cryptocurrencies, and then converted into Ethereum and bitcoin, according to Adams' office.

Even crypto's most ardent proponents, however, must face the daily reality that digital systems can only go so far. A dinner at a restaurant, a movie ticket, or a fast trip to the convenience store would be difficult to pay for using bitcoin.