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Bitcoin heads for worst weekly drop since March amid sell-off

Tesla CEO Elon Musk smokes while next to a microphone.
Tesla CEO Elon Musk helped spark a slide in bitcoin’s price.
(Screenshot)

Bitcoin’s rally has hit a speed bump, putting it on track for the worst weekly slide in almost a year amid wider losses in risk assets.

The largest cryptocurrency slumped as much as 23% this week, the most since the pandemic-fueled sell-off last March. The wider Bloomberg Galaxy Crypto Index, tracking bitcoin, ether and three other cryptocurrencies, was down as much as 26% this week.

Bitcoin fell as much as 8% to $44,159 before recovering some losses to around $46,000 as of 2 p.m.

“It is a market that was ridiculously overbought and will probably be so once again in the not-too-distant future,” Craig Erlam, a senior market analyst at OANDA Europe, said in a note Friday.

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The rough patch for bitcoin comes amid increased volatility in global markets, as a surge in bond yields heralds growing expectations that growth and inflation are moving higher and forcing traders to reevaluate their positions across multiple asset classes. The tech-heavy Nasdaq 100 dropped the most since October this week as stocks of companies such as Tesla Inc. and Peloton Interactive Inc. slumped.

“Risk-on assets are taking a hit at the moment — we’re seeing stocks slide and crypto is following,” said Vijay Ayyar, head of Asia Pacific for cryptocurrency exchange Luno in Singapore. “The dollar is strengthening, which is a good indication to expect a slide in bitcoin and crypto.”

Bitcoin’s weakness in the face of market gyrations raises questions about its efficacy as a store of value and hedge against inflation, a key argument among proponents of its stunning fivefold rally over the last year. Detractors have maintained that the digital asset’s surge is a speculative bubble and it’s destined for a repeat of the 2017 boom and bust.

While bitcoin is often touted as the new “digital gold,” the metal is winning out at the moment with spot gold trading around $1,728 per ounce, down about 3% for the week. The Bloomberg Dollar Spot Index is up 0.9% in the same period, on track for its strongest gain since October.

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Heavy selling in the Grayscale Bitcoin Trust, the world’s largest such fund, as well as the expiration of bitcoin options are also contributing to the volatility, Ayyar said. The trust has slumped 23% this week, with losses racing past its underlying asset, as a once-massive price premium over bitcoin has turned negative as investors cashed in on those gains, he said.

Prominent figures across the financial world have also recently weighed in on bitcoin.

On Feb. 19, Tesla Chief Executive Elon Musk said the prices “seem high,” seen by some as an initial catalyst for this week’s sell-off. Ark Investment Management’s Cathie Wood later said in a Bloomberg interview that she was “very positive on bitcoin” but didn’t disclose whether Ark had made a purchase.

Earlier this week, Microsoft Corp. co-founder Bill Gates said in a Bloomberg Television interview that he wasn’t a fan of bitcoin, while Treasury Secretary Janet L. Yellen said the token was an “extremely inefficient way of conducting transactions.”

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Bloomberg writer Vildana Hajric contributed to this report.


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