Here’s what’s behind Bitcoin’s sudden drop

Here’s what’s behind Bitcoin’s sudden drop


Igor Golovniov | LightRocket | Getty Images

The spectacular decline of Bitcoin and other cryptocurrencies come as a flurry of negative headlines and catalysts, from Tesla CEO Elon Musk to a new round of Chinese government regulations, hit an asset sector that has been characterized by extreme volatility since its inception. creation.

The flagship cryptocurrency fell more than three months lower on Wednesday, dropping to around $ 30,000 at one point for a decline of more than 30% and the continuation of a week of selling in the crypto space. Ether, the main coin of the ethereum blockchain network, also fell sharply and fell below $ 2,000 at one point, down more than 40% in less than 24 hours.

The recent slide is a reversal from the dramatic rise that began in the second half of last year. The price of bitcoin is still up more than 200% since September, the product of a dramatic bullish rally triggered in part by hedge fund managers, banks and other companies appearing to embrace cryptocurrency.

“A lot more people own crypto. Crypto has seeped into the pockets of our entire society and you’ve had a confluence of events – a combination of tax day, Elon Musk tweets, etc., where you started out. break down the positivity into the price action, and now we have a liquidation event, “longtime bitcoin bull Mike Novogratz said on CNBC”Squawk Box. “

Institutional support retreats

However, Musk announced last week that Tesla no longer accepts bitcoin as a payment method, citing environmental concerns. Musk suggested on Wednesday that Tesla was not selling its existing bitcoin wallet, using emojis on Twitter to say the company had “diamond hands.”

And Coinbase, which topped $ 400 shortly after its first trade on April 14, quickly ditched those gains and fell nearly $ 220 per share on Wednesday morning. Its direct listing date is also the day of Bitcoin’s most recent record.

In addition, a new report from JPMorgan said that, on the basis of futures contracts, institutional investors seemed move away from bitcoin and come back to gold. Bitcoin is often touted as a potential replacement for traditional metal as a store of value.

A risk outside the trade?

The weakness is not isolated in crypto, suggesting that the moves could be part of a larger investor rotation away from more speculative trades.

Tech and growth stocks, many of which significantly outperformed the market as a whole during the pandemic, have also struggled in recent weeks.

the ETF Ark Innovation, a high-growth equity fund led by star fund manager Cathie Wood, is down more than 30% from its February highs. Wednesday morning, technology Nasdaq Composite fell 6.9% from its highest closing high on April 26. Russell 2000 is down 5.6% over the same period.

The declines also coincided with the tax payment deadline, which could have sparked selling pressure as investors sought cash to repay capital gains taxes.

Regulatory concerns

The rise of dogecoin, which started out only as a joke before gaining popularity with the help of Elon Musk, could also have hurt the overall credibility of the crypto market. Some of the moves in smaller, less developed coins suggest that the cryptocurrency bull market was linked to the rise of speculative day trading in stocks instead of increased institutional interest.

Other less serious cryptocurrencies have also attracted increased interest in recent weeks. On Monday, Barstool Sports founder Dave Portnoy announced that he bought $ 40,000 of a cryptocurrency called safemoon, which he described as “sh * tcoin”.

“It’s early. If it’s a Ponzi, go downstairs,” Portnoy said in a video posted to Twitter.

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