Why Bitcoin and other cryptocurrencies are falling

The world's largest cryptocurrency fell nearly 8% as China's Evergrande debt crisis rattled global markets

Cryptocurrency prices extended a slump on Tuesday after a broad sell-off sparked by worries about contagion from China Evergrande Group swept through global markets.

Bitcoin slid as much as 7.6 per cent to $40,237 in early Asian trading, dropping to the lowest level since the beginning of August, before paring some of the decline. Ether retreated below $3,000. Cardano fell about 10 per cent over the past 24 hours, according to CoinGecko.com.

The losses mirrored the concerns in the broader market as investors weighed the risks coming from Evergrande debt crisis and this week’s Federal Reserve meeting. The S&P 500 fell 1.7 per cent overnight in its worst session since May, and the stock sell-off continued in Asia on Tuesday.

“Some have attributed the sudden dip to the currently ongoing Evergrande situation in China, which has already caused turmoil in traditional markets,” wrote Jonas Luethy, a sales trader at GlobalBlock, the UK-based digital asset broker.

“Analysts have suggested a choppy week is ahead, with a potential pullback to as low as $41,000.”

Although Bitcoin does not always trade in tandem with financial markets – a characteristic that made it a tempting proposition from a portfolio-diversification point of view – its correlation on a 30-day basis to futures on the Nasdaq 100 has been consistently positive since February last year.

As Bitcoin becomes more integrated in global financial markets, it may respond more to the changes in risk appetite that drive global sentiment.

Meanwhile, El Salvador’s President Nayib Bukele said the country had “bought the dip”, in Bitcoin, adding 150 tokens to raise its total holdings to 700 – about $32 million based on current pricing. The nation recently adopted Bitcoin as legal tender in a controversial move that met with technical glitches and protests.

“This is part of a well-established pattern where it sells off as traders cash in their riskier assets to cover margin calls and/or sit on the sidelines until markets calm down and they feel more comfortable going back into riskier positions,” said Leah Wald, chief executive at Valkyrie Investments.

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Updated: September 21st 2021, 7:08 AM
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