Bitcoin sank to a new six-month low on Monday, leaving the digital token 50 per cent below its November peak and pulling down the shares in companies whose fortunes are tied to the cryptocurrency market.
The price of the digital coin slipped 9 per cent in afternoon trading in Europe to $33,307, its lowest point since mid-July. Although it remains the world’s biggest cryptocurrency by market value, Bitcoin has lost more than half its value since peaking at just under $69,000 last year.
The broader digital asset market has also come under intense selling pressure, with an FT Wilshire index tracking the top five digital coins excluding Bitcoin down 27 per cent in 2022.
The sharp falls across crypto markets have ricocheted into the US stock market. A basket of cryptocurrency-related shares collated by Goldman Sachs has shed around a third of its value in 2022. Coinbase, the US-listed crypto exchange, dropped 13 per cent on Monday, while MicroStrategy, a software company that heavily invests in bitcoin, fell by a similar margin.
“This looks like a crash for now,” said Michael Every, global strategist at Rabobank in a note on Monday.
The sell-off has coincided with a wider shift by investors out of speculative assets as they prepare for central banks around the world to rein in their stimulus programmes. Expectations for higher interest rates make riskier investments less desirable since it increases the returns investors can earn from holding top-quality securities like US government bonds.
“It’s very much an environment where one should be short for at least another month . . . anything that is speculative and hypey, and long companies that benefit from rate hikes”, said Tancredi Cordero, founder of Kuros Associates. Shorting refers to betting against shares in a company, while ‘going long’ is the opposite.
“The funny thing about crypto and Bitcoin”, said Joel Kruger, market strategist at LMAX group, “is that they’re assets that were born out of a rejection of the existing system, and yet they’ve benefited so greatly from that system and the monetary policy incentives that have driven an unprecedented flow into risk assets”.
The allure of cryptocurrencies has been further damaged by moves from regulatory bodies around the world to tighten rules on how digital assets and traded and advertised.
Russia’s central bank last week proposed banning all cryptocurrency operations in the country, saying that like other “financial pyramids”, the value of digital coins is “largely supported by demand from new entrants to the market”.
The UK’s Financial Conduct Authority said last Wednesday that it hopes to clamp down on misleading crypto adverts, following moves to boost consumer protections in Spain, Singapore and Italy.
Shares in MicroStrategy, led by well-known crypto bull Michael Saylor, had tumbled by more than 17 per cent on Friday after the US Securities and Exchange Commission objected to the group’s exclusion of fluctuations in the price of Bitcoin from its adjusted accounting measures.