Bitcoin has lost more than half its value in the last six months amid broader tech sell-off
Some regulators say bitcoin should be approached with renewed caution.
The cryptocurrency bitcoin, which saw stunning gains last year, lost more than half its value over the past six months.
Since ratcheting up to more than $64,000 in November, the price of one bitcoin has now fallen more than 50 percent. On Friday it was trading around $30,000, after falling as low as $26,000 earlier in the week.
The sell-off is tied in part to rising interest rates and inflation that sits at 40-year highs, which has sent the broader stock market reeling. But the extent of bitcoin’s decline may come as a shock — especially to some investors who bought bitcoin during its most recent price run-up.
A host of online narratives, some of which have been echoed in mainstream business publications, had proclaimed bitcoin to be untethered to the traditional investment markets, and even to be a trustworthy hedge against the kind of inflation the U.S. and other parts of the world are now experiencing.
But this week’s bitcoin sell-off came amid a wider market downturn — something that appears to disprove the notion that bitcoin is walled-off from conventional market pressures, analysts say.
“That was a narrative, but it’s not true,” said Damanick Dantes, an investor and a crypto market analyst at the cryptocurrency website CoinDesk.
Instead, Dantes said, bitcoin’s price trajectory looks more like those of volatile technology stocks for companies that often operate at losses despite high growth.
In other words, betting on bitcoin these days is no different than betting on a tech company that could have lots of potential, but whose short-term value is no longer clear.
Growth in those assets, Dantes said, is usually fueled by what he called investors’ excess risk budgets — which are often correlated with low interest rate environments. Given that interest rates have risen and investors’ appetite for risk is waning, he said, bitcoin’s sell-off is not surprising.
“Investors and traders are now looking for stability, for high-quality value areas,” he said. “That’s the complete opposite of an asset like bitcoin.”
The price of bitcoin soared amid the pandemic, rising from about $10,000 in September 2020 to more than $60,000 in March 2021. The surge was driven in part by headlines that indicated increased buying by ever-larger companies, including Tesla, which in February 2021 announced it had purchased $1.5 billion in bitcoin.
Yet by July 2021, bitcoin had plunged in price to about $31,000. The drop followed a May announcement that China had banned its financial and payment institutions from providing cryptocurrency services. By September, China had issued a blanket ban on all crypto transactions and mining in the country.
Soon after, bitcoin began to rise again. The year 2021 also saw the rise of the so-called “meme” stocks like GameStop and AMC. Analysts say the price of bitcoin is now most heavily correlated with those types of high-risk, high-reward equities. GameStop shares hit a high of $325 in January 2021, and have fallen about 70 percent to $98 at the close of markets on Friday. AMC, meanwhile, has fallen about 80 percent from $59 in June 2021 to $11 on Friday.
“It’s the same traders — the same investors,” said Don Kaufman, co-founder of trading education platform TheoTrade and a trading professional. “It’s bitcoin, NASDAQ, meme stocks.”