Why did the Bitcoin price just hit 2-year lows?

It's not just Bitcoin. All of the top cryptocurrencies are deep into the red over the past day.

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Key points

  • The Bitcoin price just hit two-year lows
  • Investors are selling their crypto holdings following the liquidity crunch at crypto exchange FTX.com
  • Binance has walked away from its takeover offer of the embattled FTX exchange

The Bitcoin (CRYPTO: BTC) price is in fast retreat.

The world's original crypto is down 15% over the past 24 hours and down 22% since this time last week.

At the time of writing, BTC is trading for US$15,680 (AU$24,358). The last time the Bitcoin price was at this level was back on 9 November 2020, putting the token at two-year lows.

So, what the heck is going on?

Why are cryptos tumbling across the board?

The Bitcoin price, and indeed the price of most every top crypto, has been hit hard following liquidity issues at global crypto exchange FTX.com.

Co-founded by Sam Bankman-Fried, FTX counts (or is counted) among the top five exchanges in the world.

The liquidity issues began over the weekend.

That's when Changpeng Zhao, the CEO of Binance (the world's biggest crypto exchange) alleged that FTX was backed by a lot of virtual assets. Namely the FTX Token (CRYPTO: FTT), the utility token of the FTX exchange.

Zhao then said he was selling US$530 million of FTT, causing a wider run on the token and roiling crypto markets.

With FTX.com in deep water, Zhao had indicated that Binance would take over the exchange earlier in the week. However, he abandoned those plans yesterday.

The result?

Atop the Bitcoin price hitting two-year lows, FTT is down 61% overnight and down 91% since this time last week, according to data from CoinMarketCap.

What the experts are saying about the crypto rout and tumbling Bitcoin price

Commenting on the sharp sell-off, Ilan​ Solot, co‑head of digital assets at Marex Solutions said (courtesy of Bloomberg), "The market is now in full fear mode. Everyone's looking to see if there's more dominoes and what else needs to be liquidated."

Modular Asset Management's crypto hedge-fund manager Dan Liebau added, "Since I entered the crypto industry in 2016, very few periods tested its market infrastructure and participants like the last 24 hours did."

And Noelle Acheson, author of the Crypto is Macro Now newsletter, said the big decline in the Bitcoin price, which normally tends to be more resilient in selloffs than most altcoins, could mean that institutional investors are exiting their positions.

According to the Acheson:

It's a sign that this is a blow to confidence in the industry as a whole, from the investor's point of view. From the industry's point of view, it's also a pretty steep blow, much more so than what we saw with Three Arrows Capital and with the Terra implosion. This is sitting harder.

Atop the FTX meltdown blow, cryptos could face additional headwinds if today's inflation data out of the United States (overnight Aussie time) comes in higher than hoped for.

Should inflation prove to still be running hot, it will likely mean more aggressive rate hikes from the US Fed in the months ahead.

And if we've learned anything in 2022, it's that the Bitcoin price doesn't respond well to fast-rising interest rates.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin. The Motley Fool Australia has positions in and has recommended Bitcoin. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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