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Bitcoin Falls as Bond Volatility Saps Demand for Cryptocurrencies

Bitcoin falls for a second day as comments from Federal Reserve Chairman Jerome Powell spark another increase in bond yields,  prompting investors to turn toward less-risky assets.

Bitcoin fell for a second day Friday as comments from Federal Reserve Chairman Jerome Powell sparked another increase in bond yields, in turn prompting investors to turn toward assets perceived as less risky.

Bitocoin was down about 3% at $48,308 in Friday trading, according to CoinDesk. The largest cryptocurrency is now some $10,000 below February’s record $58,000 level - a price that pushed bitcoin above $1 trillion in total market value.

Bitcoin’s price fell by the most in a week on Thursday after Powell acknowledged he “would be concerned” by tightening financial conditions, as rising U.S. government-bond yields put upward pressure on borrowing costs.

In a question-and-answer session with The Wall Street Journal, Powell said he doesn’t expect higher inflation to persist over the long term and that the central bank is still “a long way from our goals” of an economic recovery and lower unemployment.

However, he did sound a gentle word of caution to the bond market that he’s watching the jump in long-term interest rates.

The yield on the 10-year U.S. Treasury note rose above 1.5% Thursday on perceptions that the Fed may be more reticent to keep the monetary stimulus spigots open - something it has been doing since the onset of the pandemic more than a year ago.

Bitcoin’s rise has been fueled in part by speculators betting it will be the dominant digital currency. But it's also been driven by institutional investors who are buying into the idea that bitcoin specifically is “digital gold” - an asset class that has equal if not greater chances of retaining its value, and in turn being a hedge against risks such as inflation.

For traders and investors betting on the latter, Powell’s comments offered few signs the Fed has any new dovish plans in the works, such as expanding its $120 billion-a-month bond-purchasing program, even as most market participants expect the Fed to keep interest rates near zero well through the end of 2022 or longer.

Bitcoin prices quadrupled last year and have rallied 66% this year on speculation the cryptocurrency could serve as an inflation hedge in the face of trillions of dollars of money printing by central banks around the world.