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Why are bitcoin prices still plunging?

Regulators in China taking a tougher stance on cryptocurrencies could partially explain the most recent rout in bitcoin prices. But some Wall Street watchers think the U.S. Federal Reserve's new hawkish stance on interest rate policy and bond buying is also playing a key role.

"It is our belief that part of the momentous rally (an important part) has been helped by the Fed’s largess. Bitcoin and other cryptos should rally further on their own over the years, but we believe that they have been pulled forward by the Fed’s stimulus. In other words, we do not think that the stock market is the only asset class that has gotten ahead of itself due to the massive stimulus programs of the past year plus," said Miller Tabak chief markets strategist Matt Maley in a new research note.

Bitcoin prices have nosedived by 16% to $32,000 since the Fed surprised investors on June 16 by signaling two potential interest rate increases by the end of 2023. Many market watchers surmised the Fed was trying to talk down red-hot asset prices (which have in part been fueled by the ability to borrow money cheaply), and bitcoin is no exception.

Bitcoin prices fell below the key $30,000 level on Tuesday, touching $29,458 at the lows as traders continued to digest Fed day and hawkish comments since from St. Louis Fed President James Bullard.

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From the record highs of more than $63,000 hit in mid-April, bitcoin has shed nearly 50% as regulators in China crack down on mining in the country. Negative tweets on the environmental impact of bitcoin mining from Tesla CEO Elon Musk haven't helped bitcoin prices, either.

Now that bitcoin prices have breached the important support point of $30,000, traders are bracing for an additional selling wave in the near-term.

Warns Maley, "Bitcoin has touched that $30,000 level (or at least come very close to it) several times over the last month. Therefore, if it drops below that level in any meaningful way, it’s going to be very bearish on a technical basis. Thus the $20,000 level that many pundits have been pointing to recently is not out of the question at all. This will not mean that the bull market is cryptos is over, but a break below $30,000 will be something that will be quite negative on a short-term basis."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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