Bitcoin’s rally this year 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 20% this week, the most since March, and was holding at about $46,925 as of 10:22 a.m. In Hong Kong. The wider Bloomberg Galaxy Crypto Index, tracking Bitcoin, Ether and three other cryptocurrencies, is down 22% this week.
The rough patch for Bitcoin comes amid wider chaos 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 in seven of the past eight sessions as stocks like Tesla Inc. And Peloton Interactive Inc. Declined.
“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 past year. Detractors have maintained 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 yellow metal is winning out at the moment with spot gold holding at $1,768 per ounce, down less than 1% for the week. The Bloomberg Dollar Spot Index is up 0.3% in the same period, on track for its strongest gain in a month.
Heavy selling in the Grayscale Bitcoin Trust, the world’s largest such fund, as well as the expiry of Bitcoin options are also contributing to the volatility, Ayyar said. The trust has slumped 20% this week, with losses at one point racing past its underlying asset, as a once-massive price premium over Bitcoin has evaporated as investors cashed in on those gains, he said.