Bitcoin drops to $121,000 after hitting record highs

The world’s largest cryptocurrency last traded 2 per cent lower at $121,449.3

Bitcoin pulled back sharply to around $121,000 on Wednesday after hitting record high above $126,000 earlier this week, as profit-taking intensified and strength in the U.S. dollar challenged “debasement-trade” flows.

The world’s largest cryptocurrency last traded 2 per cent lower at $121,449.3 by 06:22 GMT.

The token had surged to an all-time high of $126,186.0 on Monday, underpinned by heavy inflows into Bitcoin exchange-traded funds (ETFs) and speculative positioning betting on fiat currency weakness during a protracted U.S. government shutdown.

The US Dollar Index jumped to a three-week high on Tuesday as investors sought safety amid concerns that the government shutdown, now entering its second week, could disrupt data releases and complicate the U.S. central bank’s policy outlook.

Bitcoin’s earlier rally was fuelled by optimism over sustained ETF inflows, which have provided new channels for institutional investors to gain exposure to the token.

Reports also cited “debasement trades” – bets that the fiat currency would weaken amid rising fiscal uncertainty – as a key driver behind Bitcoin’s move to new records.

However, as the dollar firmed and Treasury yields remained higher, markets questioned the sustainability of those bets.

With key releases delayed, market focus is now on minutes from the central bank’s latest meeting and comments from Chair Jerome Powell later this week.

Crypto-linked stocks plunged on Tuesday as Bitcoin’s decline weighed on sentiment across the sector.

Shares of Strategy Inc slumped nearly 7 per cent, while Coinbase Global shares dropped 4 per cent.

Bitcoin mining names also suffered, with Marathon Digital declining 4 per cent, and Riot Platforms dropping 3 per cent.