Bitcoin Slumps 10% as Risk Aversion Sweeps Global Markets

(Bloomberg) — Cryptocurrencies were hit by a bout of risk aversion across global markets on Monday, sending Bitcoin down more than 10% at one point

Cryptocurrencies slid on Monday as part of a broader risk-off mood across global markets, with Bitcoin dropping more than 10% at one point and ether suffering its biggest daily decline since 2021.

Bitcoin was trading down 8.5% at $54,100 at 10:40 a.m. in Singapore, adding to a 13.1% drop last week that was the worst since the FTX exchange collapsed. Ether lost more than a fifth of its value before recovering some of its losses to trade at $2,275. Most major tokens were deep in the red.

The declines come as a global stock selloff gathers pace, reflecting concerns about the economic outlook and whether heavy investment in artificial intelligence is living up to the hype around the technology. Geopolitical tensions are rising in the Middle East, adding to investor jitters.

On Aug. 2, U.S. exchange-traded funds for Bitcoin saw their largest outflows in about three months. The question is whether the products will attract buyers who are down when trading resumes, or whether they will be destroyed by deeper exits.

“Carrying Handle”

Digital assets are partly a victim of the unwinding yen carry trade as speculators adjust to higher interest rates in Japan, according to Hayden Hughes, head of crypto investments at family office Evergreen Growth.

“These investors are also facing a dramatic increase in hedging costs based on the volatility of the US dollar-Japanese yen trading pair,” Hughes said.

Bitcoin has been buffeted by a range of factors since hitting a record $73,798 in March, including changing political fortunes in the US as pro-crypto Republican Donald Trump and Democratic opponent Vice President Kamala Harris – who has yet to take a position on her policy on digital assets – lock horns in the presidential race.

The potential sale of Bitcoins seized by governments also hangs over the market. There is also the risk of a sell-off as tokens are returned to creditors through bankruptcy proceedings.

Fed Outlook

Bond traders have been ramping up their bets on U.S. rate cuts from September to support economic growth. The prospect of less restrictive monetary policy is actually “a good thing for crypto,” argued Sean Farrell, head of digital asset strategy at Fundstrat Global Advisors LLC.

Bitcoin's pullback from its lows on Monday left the token at levels last seen in February. Ether, meanwhile, has previously fallen back to prices seen earlier in the year. Like Bitcoin, it remains to be seen how investors in new U.S. spot Ether ETFs will react.

Justin D’Anethan, head of Asia Pacific business development at market maker Keyrock, said the crypto rout was somewhat driven by Ether, citing social media rumors of institutional investors selling Ether-related assets.

Data from Coinglass shows that around $700 million worth of bullish crypto positions were liquidated using derivatives in the past 24 hours, a sign that leveraged bets are failing.

Khushboo Khullar, a venture partner at Lightning Ventures, which invests in bitcoin-linked companies, said the broad stock decline had caused some “panic,” with investors quickly seeking liquidity to settle margin calls. She argued that the crypto pullback is a “great buying opportunity.”

Bitcoin's year-to-date gains have been moderate at around 24%, compared with a 19% rise in gold and a 9% jump in the global equity benchmark.