Bitcoin slid toward $29,000 on Wednesday as traders mulled over the likelihood that Federal Reserve rate cuts may be further away than they thought.

The price of bitcoin was last lower by 3.22% and trading at $29,227.24, while ether fell 4.82% to $1,980.68, according to Coin Metrics.

The drop comes after ether rallied 12% over the course of last week and pushed above the $2,000 for the first time since August. That helped drive bitcoin higher by 8% to above the $30,000 mark.

"We believe the pullback we're seeing is more a function of an overdue correction following some impressive moves and possible profit taking on broader risk-off flow in global markets than anything crypto specific," said Joel Kruger, market strategist at LMAX Group.

Investors Wednesday morning were taking in new U.K. inflation data, which showed consumer prices unexpectedly held above 10% in March. That fueled expectations that the Bank of England could hike rates by 25 basis points at its May meeting.

Meanwhile in the U.S., Atlanta Federal Reserve President Raphael Bostic said Tuesday that he anticipates one more 25 basis point interest rate increase and then a hold "for quite some time." Bostic spoke to CNBC's "Squawk on the Street."

"There have been some signs the Fed could be more aggressive towards higher interest rate policy than what the market is pricing, which has been driving yield differentials in the U.S. dollar's favor, while weighing on sentiment," Kruger said.

Market participants had expected a pullback in crypto prices this week as investors moved attention away from Ethereum's latest technical upgrade and toward the potential that the Fed could push the economy into a recession with its rate hikes — which would give bitcoin a new proving ground at a time when investors are just warming to the diversity of the crypto asset's potential.

Clara Medalie, head of research at crypto data provider Kaiko, noted that liquidity in the crypto market remains low after the U.S. lost two of its biggest fiat-to-crypto on-ramps in the banking crisis earlier this year – the networks provided by Silvergate and Signature Bank.

"Overall, volatility can be expected both towards the upside and downside due to a prolonged bout of thin liquidity in crypto markets, which has hit bitcoin and ether particularly hard," she said. "It is hard to trust any crypto rally with the state of market liquidity, so a sharp drop towards the downside is hardly a surprise."

Traders were also digesting Tuesday's contentious congressional hearing with Securities and Exchange Commission Chair Gary Gensler, who defended his agency's crackdown on cryptocurrency trading platforms and failed to provide a clear answer on whether ether is a security. Gensler has long maintained that all crypto assets other than bitcoin should be deemed securities.