Leading cryptocurrency Bitcoin, hit a new two-month low on Friday, breaking out of its recent tight range as a wave of risk-averse sentiment swept through world markets. On Thursday, it fell 7.2% in its most significant one-day drop since November 2022, when top exchange FTX collapsed. It then slipped to a two-month low of $26,172 during Asian trading hours on Friday – its lowest since June 16 – before recovering slightly.
The latest sell-off coincided with sharp falls in global stock markets, driven by concerns over US interest rates and a deepening economic slowdown. Investors also remained wary of the impact of rising inflation on risk assets. The pound tumbled after the UK central bank raised interest rates to their highest levels in nearly nine years. The euro was lower against the dollar due to dire European industrial orders data.
Cryptocurrency investors were spooked by the sell-off in global markets, with prices slipping across the board. Traders were liquidating derivative contracts ahead of monthly options expirations at the end of this week, which can often sway the market.
Adding to the sell-off was a report by the Wall Street Journal that Elon Musk’s rocket company SpaceX had sold some of its Bitcoin holdings. The article cited a review of SpaceX’s balance sheet by its accountants that showed the firm wrote down the value of its bitcoin holdings and then dumped them.
The fall triggered similar slumps in other major cryptocurrencies, including Ethereum and Ripple. The slumps come as the industry faces regulatory uncertainty, with several prominent players facing problems. For example, crypto hedge fund Three Arrows Capital is seeking alternatives to selling its assets, while Asia-focused crypto lender Babel Finance halted withdrawals. It also comes amid an ongoing crackdown on the sector by US lawmakers.
Joseph Edwards, head of research at Enigma Securities, said he believed a combination of factors drove the decline. He noted that the recent recovery to $30,000 had been on light volume, which meant it needed more momentum. He added that investors were worried about the impact of rising interest rates on all risk assets, which could lead to increased correlations between equities and crypto.
Investors also remained wary that the SEC may approve spot bitcoin ETF applications from Grayscale. The investment firm is battling the regulator in court over its attempt to launch a US-listed bitcoin exchange-traded fund (ETF). But he said the latest sell-off may have prompted some investors to pull their applications. “That’s a big negative,” Edwards said. “If the SEC doesn’t approve them, that could send markets crashing.”