Bitcoin’s rally this year has hit a snag. Bitcoin is on pace for its biggest weekly drop in nearly a year amid a significant decline in risky assets.
Last week, bitcoin soared above a record $58,000, but has been falling since then. This week, bitcoin plunged another 21%, its biggest weekly drop since March of last year. The Bloomberg Galaxy Crypto Index, which tracks bitcoin, ethereum and three other cryptocurrencies, also fell 23% this week.
While bitcoin is often touted as the new “digital Gold,” real gold is clearly doing better. Spot gold is running near $1,764 an ounce, down about 1.1% for the week. Meanwhile, the Bloomberg Dollar Spot Index rose 0.4%, on track for its biggest gain in a month.
Bitcoin prices fell below the key $45,000 support level at one point earlier on Friday, according to comprehensive pricing data compiled by foreign media.
The plunge in bitcoin comes as global markets are experiencing varying degrees of disruption. Treasury yields, for example, are spiking, signaling a growing bullishness on growth and higher Inflation and causing traders to rebalance their positions across multiple asset classes; the tech-heavy Nasdaq 100 has posted losses in seven of the past eight trading days; and stocks such as tesla and Palladium have also declined.
Vijay Ayyar, head of Asia-Pacific at Luno, a Singapore-based cryptocurrency exchange, said.
“At the moment, risk assets are taking a hit – stocks are falling and cryptocurrencies are also falling. The stronger dollar is the main factor that is bringing cryptocurrencies like bitcoin down.”
Bitcoin’s poor performance amid market volatility has raised questions about its store of value and hedging role against inflation. Bitcoin’s existence as a store of value and hedge against inflation is a bullish reason for bitcoin supporters for its impressive five-fold rise over the past year. But opponents of Bitcoin argue that the digital asset’s surge is a speculative bubble, much like the boom of 2017 and the bust of 2018.
Notably, the world’s largest bitcoin fund is falling faster than the cryptocurrency itself.
The plunge of Grayscale Bitcoin Trust (GBTC), the world’s largest bitcoin fund, and the expiration of bitcoin options also contributed to bitcoin’s volatility, Ayyar said.
The $32 billion GBTC plunged 20% this week, losing even more than its underlying asset, bitcoin. As a result, the huge premium that once existed for GBTC relative to bitcoin has disappeared.
According to data compiled by foreign media, GBTC’s price was 0.7% lower than bitcoin at the close of trading on Wednesday, the first Time it has been lower than bitcoin’s price since March 2017. Analysts say investors previously invested heavily in GBTC because of bitcoin’s mind-blowing rally, and now the disappearance of the GBTC premium suggests that investors are looking for a way out.
Eric Balchunas, senior ETF analyst at Foreign Exchange, said.
“This is a decline due to panic or profit-taking unwinding. It looks like the GBTC price is like a magnified version of the bitcoin price.”
Michael Sonnenshein, GBTC’s chief executive, acknowledged the disappearance of the GBTC premium as a risk during a panel discussion at the Bloomberg Cryptocurrency Summit on Thursday. He said.
“There’s no question that it’s a risk. But in general, GBTC’s daily price movements are driven entirely by market forces.”
Recent Comments