Bitcoin
Bitcoin crash triggers warning of “future problems” for global markets
(Bloomberg) — Bitcoin’s plunge is sparking interest from investors who see pronounced swings in the digital token as a possible precursor to broader shifts in risk appetite in global markets.
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The cryptocurrency is down about 4% in the last two days after a nearly 16% drop in April, the worst monthly drop since Sam Bankman-Fried’s FTX digital asset empire imploded in November 2022. The token changed hands for US$57,359 at 11:50am on Thursday in Singapore, around the two-month low.
Some investors scour Bitcoin’s inflections for clues about changes in liquidity dynamics that could affect other assets. The token has fallen in recent weeks as the Federal Reserve signaled that interest rates will remain higher for longer, a mantra that has tightened financial conditions by pushing up Treasury yields and the dollar.
“Bitcoin is our favorite canary,” wrote Charlie Morris, chief investment officer at ByteTree Asset Management, in a note. “It’s a warning about future problems in financial markets, but we can be confident it will recover at some point.”
“The recent appreciation of the US dollar could signal a tightening in the market in the future,” Morris added.
The biggest digital asset hit a record high of nearly $74,000 in mid-March, driven by a flood of inflows into the first U.S. spot Bitcoin exchange-traded funds from companies like BlackRock Inc.
Demand for the products subsequently fizzled and markets failed to gain a tailwind from this week’s launch of spot Bitcoin and Ether ETFs in Hong Kong. Discounts to the net asset value of some US portfolios have increased to record levels, underlining the challenges that can result from Bitcoin’s volatility.
Read more: Bitcoin ETF discounts reach record highs after end-of-day sell-off
Bitcoin has recorded four April crashes over the past decade, three of which presaged May losses that averaged 18%, according to data compiled by Bloomberg.
Still, if inflationary pressures ease and markets revive bets on a much more flexible stance from the Fed, crypto and other speculative investments could find some relief.
Fed Chairman Jerome Powell kept hopes alive for a rate cut this year after the central bank concluded its latest meeting on Wednesday. But he also acknowledged that a burst of inflation has undermined confidence that price pressures are easing.
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“The next three to four months will be less optimistic and more risk-oriented, with the market closely monitoring inflation, employment and economic data for any unexpected shocks or to gain confidence about potential rate cuts,” said Youwei Yang, chief economist and vice president. President of crypto mining company BIT Mining Ltd.
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