Bitcoin registers worst weekly slump since March

The world's largest cryptocurrency was slumped 20% this week while Ether fell 23% amid a sell-off

The UAE Central Bank has yet to accept or acknowledge crypto or digital assets as a legal tender in the UAE. The only legal tender in the country is the UAE dirham.. Bloomberg

Bitcoin’s rally hit a speed bump as the world’s largest cryptocurrency witnessed its worst weekly decline in almost a year amid wider losses in risk assets.

The digital token slumped 20 per cent this week, the most since the pandemic-fueled selloff last March. The wider Bloomberg Galaxy Crypto Index, tracking Bitcoin, Ether and three other cryptocurrencies, was down 23 per cent for the same period.

Bitcoin fell 5 per cent  to trade at $45,672 as of 5.00pm in New York, according to consolidated pricing compiled by Bloomberg.

“It is a market that was ridiculously overbought and will probably be so once again in the not-too-distant future,” Craig Erlam, a senior market analyst at OANDA Europe, said in a note on Friday.

The rough patch for Bitcoin comes amid increased volatility 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 the most since October this week as stocks like Tesla and Peloton Interactive slumped.

“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 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 trading at $1,734 per ounce, down about 3 per cent  for the week. The Bloomberg Dollar Spot Index is up 0.9 per cent in the same period, its strongest gain since October.

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, Mr Ayyar said. The trust has slumped 24 per cent this week, with losses racing past its underlying asset, as a once-massive price premium over Bitcoin turned negative as investors cashed in on those gains, he said.

Prominent figures across the financial world have also recently weighed in on Bitcoin.

Tesla chief executive Elon Musk said the prices “seem high” on the weekend, seen by some as an initial catalyst for the week’s selloff. Ark Investment Management’s Cathie Wood later said in a Bloomberg interview she was “very positive on Bitcoin” but didn’t disclose whether Ark had made a purchase.

Earlier this week, Microsoft co-founder Bill Gates said in a Bloomberg Television interview he wasn’t a fan of Bitcoin, while Treasury Secretary Janet Yellen said the token was an “extremely inefficient way of conducting transactions.”